2nd
Apr 2017
According to a leading property consultancy and advisor on the residential property market from its study of the private rented sector in England and Wales, that buy-to-let property is definitely a sound investment because of the multitude of low interest rates that are currently available. The state of the stock markets is extremely unpredictable and of course fluctuates daily and therefore buy-to-let is a relatively safe bet.
The PRS has for many years yielded strong returns for investors and outstrips all major asset clauses and in spite of the government's punitive changes to tax and stamp duty, in its efforts to curtail the rise of BTL landlords in the sector, there is still optimism within the market.
1,500 of landlords throughout England and Wales were recently surveyed and found that 37% of landlords expect an increase in rents over the next six months, which year on year could see a 36% rise. 44% of landlords were confident about their portfolios performing very well in the next few months.
Paul Winstanley, a partner at the firm, said: “For those with equity to invest, buy-to-let returns still have the potential to outstrip savings accounts over the long term.
“Whilst tax changes and toughening lending criteria is challenging landlords, most are in it for the long term and we still only expect a small minority to exit as the tax changes feed through.”
In spite of the optimism on long term investment performances, increasing numbers of landlords proposing to expand their properties has fallen to 16% over the last year, which according to the survey is the lowest since 2012.
As has been reported widely that the Prudential Authority regulations on buy-to-let lending has been toughened up and 83% of respondents had encountered the stricter regime.
The report has made calculations for each region of their estimated annual returns for three, five and ten years and has accounted for the basic rate of 20% and 40% tax brackets, it has studied rental yields, costs of maintenance and house price growth, along with legal and finance costs.
To achieve the estimated returns, variables were applied and included borrowing based on a rent cover of 145% and a predicted 5.25% rate of interest, as well as a five-year fixed term mortgage interest rate of 3.25% and 4.5% for the remainder of the term and running costs of 25% of income.
The analysis used the Office for Budget Responsibility national forecasts for house price increases and wage growth, the East Midlands and Yorkshire came out strongest with a predicted 11.25% annual return for a basic rate of tax payer for the five years, and a respectable 9% return for those who pay 40%.
In contrast London was the lowest; however it could still yield 5.75% annually for those paying 20% tax and 4.75% for those paying the higher rate of tax over a five year period. 45% of landlords that took part in the survey paid the higher tax bracket of 40%.
Paul Winstanley concluded: “With no quick solutions to the housing crisis, long-term private landlords providing decent accommodation will continue to play an important role in housing our population.
“As long as there are no new tax raises targeting landlords, buy-to-let will remain a stable and attractive sector for long-term investors.”
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