THE FUTURE OF BUY TO LET
The fact is that the future prospects for buy-to-let lie largely in the hands of the politicians. Not because they might implement penal tax charges on landlords as had been feared by removing the ability for landlords to offset the interest on their buy-to-let loans against rental income when calculating their rental businesses profits; or even by continuing with the introduction of more onerous bureaucracy such as the Tenancy Deposit Scheme or Houses in Multiple Occupation (HMO) licensing.
No, the main impact that politicians will have in the coming months and years is their approach to immigration.
Immigration key to buy-to-let prospects
There is no doubt that immigration has made a massive contribution to the UK economy, not least has this been seen in the UK’s housing sector.
The skills of new immigrants have been essential in maintaining the building rates in the UK over the last few years. Shortages of skilled plumbers, electricians, etc would have done much to have held back the construction of new houses facilitating even more shortages and adding further to high rates of house price inflation.
However, the dilemma for policy makers and politicians is that these skilled workers all require housing & are all potential tenants or homeowners. Therefore they in their own right also add to the pressure on accommodation. The latest figures produced by the Government have shown that they have underestimated the number of foreign workers in the UK; it is now put at 1.1million or between 7-8% of the UK workforce.
For many landlords the demand for rental accommodation from these workers who are frequently high quality tenants has been a ‘godsend’ and encouraged many landlords to expand their portfolio off the back of it.
Latest housing projections
The latest population projections published by the ONS (Office for National Statistics) has revised upwards estimates of net immigration from 145,000 to 190,000. The forecast now is that the UK’s population will increase to 65 million in 2016 & then 71million by 2031; a jump of 10.5 million on current levels. This further calls into question the ability of the UK house builders to provide sufficient numbers of dwellings to accommodate this increasing demand. Existing projections for house building before the revised population suggests that their will continue be a shortfall of housing each year of around 33,000 dwellings.
Gordon Brown recently stated that by 2020 3 million new homes will be built.
The reality for landlords and the Government is that the private house builders have a stranglehold over housing supply. This is because they own or control a significant amount of the limited development land needed to build these homes and potential residential investment properties. Following the massive housing depression of the late 80’s and early 90’s when many house builders just avoided going bust. House builders have learnt their lesson from this and now only build when they are confident of making an adequate return. Added to this is an increasingly restrictive planning system which makes the release of development land more time consuming and expensive than ever, restricting further the release of potential development land. This means that when Gordon says 3 million homes will be built by 2020 we can take this with all the same certainty as if I was to announce to the world that; ‘I’m going to be the next Queen of England’. Added to this situation is the revised ONS population statistics suggesting that these housing projections will need to be revised upwards significantly if the rising population is to be accommodated. All these factors points to a massive housing shortage.
This is good news for landlords and property investors is that unless the politicians turn off the tide of immigration fast, a housing shortage and rising house prices seem to be guaranteed.
Landlords therefore might want to take a gamble on rising immigration powering ahead certain parts of the UK housing market.
In which case, where are these property investment ‘hot spots’ likely to be?
Immigration hasn’t been evenly spread. The latest figures reveal that it is largely concentrated in London, the South East and the East of England. However, statistics from the Home Office also show that the new round of immigration from the 8 Accession counties including Poland and the Baltic States, Czech Republic show that the highest numbers of workers are choosing to locate in the Anglia region followed by the Midlands and then London with figures of 15%, 13% & 12% of the total. The North East, Central, North West and South West are also popular.
Landlords who are thinking of capitalising on high and growing levels of immigration should target these areas.
The new wave of tenants
The nature of immigrants from eastern European countries such as Poland, Czech Republic, Baltic States are that these workers are frequently young, educated and hard working. For instance estimates are that 60% of Polish immigrants are graduates and that 75% are between the ages of 18-34 with an average age of 28. This means that most of these prospective tenants are looking for accommodation that they can share with friends or fellow countrymen.
An undiscovered buy-to-let ‘gem’
One town in the east of England that has attracted high levels of eastern European workers is Daventry. It is popular because of the high number of warehousing jobs in the area.
One local letting agent who has been particularly active in the Daventry market is
“What has made this town a true hotspot” said James “is the phenomenal levels of tenant demand in the area. Daventry has a large number of blue collar employers – warehousing, packing, distribution, etc – which attract employees who are you typical tenants.”
“Over the last few years, capital growth on the council estates, where we buy most of the properties for clients – has consistently been in excess of 15% per annum. Good growth and low void periods make this an investors dream.”
Surprisingly, it is still-just-possible to purchase a three bedroom ex-council house in the town for less than the stamp duty amount of £125,000. These properties will then rent for around £525-575 a month. The majority of these properties James reckons will let in less than two weeks.
James assessment of the town is that “Daventry has performed brilliantly for my clients, but there is still more mileage to be had from it. It has to be one of the safest places to put your money in the UK – you won’t become a millionaire overnight, but you will certainly make money.”
Landlords therefore may be best advised to ignore the gleaming glass towers in our city centres and look instead at a council estate in a small Northamptonshire town for their buy-to-let dream. It ‘‘ain’t ‘rock ‘n roll’’. It’s just buy-to-let.