Are you a buy-to-let investor considering selling up? You’re not alone. Research by the Nottingham Building Society revealed that a fifth of landlords has been playing with the thought of cashing in, outnumbering those planning to buy more properties.
Whilst the decision for landlords wanting to part from their investment vehicle these days is mostly tax-driven, others have found that the buy-to-let game is far from over.
According to estate agent Hamptons International, a record number of buy-to-let landlords set up holding companies for their properties last year, in a bid to avoid higher taxes.
The agency found that a total of 41,700 new companies were formed in 2020, which is an increase of 23 percent on 2019.
Why? Landlords who hold properties in a limited company can offset 100 percent of their mortgage interest against profits, while those that hold property in their own name can offset just 20 percent.
As a result, buy-to-let incorporations were the second most common type of company founded in 2020 and there are now more than 228,000 buy-to-let companies up and running in the UK.
But which markets are promising the best rental yields?
Zoopla’s Rental Market Report, published in September this year, revealed that average rents across the UK outside of London rose by 5 percent in the 12 months to the end of July. This presents the biggest increase since Zoopla’s index began in 2008. The average monthly rent outside of London now stands at £790, up from £752 in July last year.
The report says that ‘rents have been pushed up by a resurgence in demand, especially in UK cities, over the summer, as the economy starts to open more fully, and university students look for accommodation as the new academic year begins.’
We currently have projects in Tunbridge Wells and Guildford and the demand from people looking to rent since the pandemic has been extremely strong.
As a result, we have also noted a stark increase in savvy investors who are shifting their investment focus from London to housing markets such as Surrey and Kent. The avalanche effect, however, is that supply can’t keep up with demand which will inevitably lead to increasingly competitive market conditions on a regional level.
Clearview’s project The Old Bank, for example, is a boutique development boasting a total of seven rental apartments. Rents range from £1,350 to £1,650 a month and all apartments have been fully let since the launch in 2019/20. “We used to receive a healthy number of applicants for our rental apartments but are seeing almost triple the amount of tenant enquiries since the pandemic,” Tema says.
This statement is further backed by Zoopla’s rental report which confirms that in the year to date, rental demand is up 19 percent compared to last year, while the total stock of rental property has decreased by 13 percent. The total stock of homes available to rent across the UK is around 30 percent lower compared to normal levels for this time of year.
Following the rush of city dwellers looking to relocate to more rural locations and the following of buy-to-let investors seeking better rental yields, this is an unsurprising market development. Another contributing factor to this is the introduction of attractive mortgage packages earlier this year.
In fact, The Mortgage Works, which is Nationwide’s buy-to-let arm found that 37,000 buy-to-let mortgages were completed in the second half of 2020; a very similar figure to the same period in 2019.
Investors looking to diversify their portfolio with regional properties may wish to consider those areas of the UK that have seen the smallest rental increase over the past year as these could offer the most room for growth. According to Zoopla, these include the West Midlands (+4.0%), North West (+4.2%), South East (+4.2%), East of England (+5.1%) and Wales (+6.4%).
*Jason Tema is the Director at Clearview Developments, a property developer with in-house construction arm that specialises in securing land, obtaining planning and the realisation of high-end residential developments.