When Chancellor Sajid Javid goes to the dispatch box to deliver the 2020 Spring Budget on 11th March, those of us involved in the UK property market will be watching on with great interest. This is the first budget of new parliament, and the first budget of a new decade. And unlike recent fiscal statements, this looks set to deliver some substantial reforms.
The property sector has seen many ups and downs over the past decade – long-term growth in demand and house prices was recently dampened by Brexit uncertainty, though it seems as though investors are once again rallying to real estate following Boris Johnson’s victory in the 2019 General Election. What’s more, housing constantly ranks as a top concern for the Government.
Housing affordability is one particular issue the Government has focused on in recent years, issuing waves of reforms directed at the private rental sector. Importantly, the vast majority of these seem to be disproportionately targeting landlords – from changes to stamp duty and mortgage interest rate relief through to amends of Section 21, landlords need to be constantly on top of changing regulations. For many, this has been a frustrating experience, making the process of owning and renting a home a tiresome and unrewarding task.
In one respect, the thinking behind these reforms do make sense to an extent. The Government is simply trying to rebalance supply and demand by disincentivising buy-to-let investments. However, landlords now feel as though they are being unfairly targeted by the state.
Tough regulations are pushing landlords out of BTL market
Regulation is, without a doubt, a necessity in protecting the interests of all those involved in the property market. But to see how the Government’s recent rules and taxes have impacted those on the bleeding edge of the changes, Accumulate Capital commissioned an independent survey of 750 landlords based in the UK to find out the answer.
Of those we surveyed, a significant number, 37%, stated they now had plans to sell their property in 2020. Property has always been considered a highly appealing asset, with healthy returns and long-term capital growth, so this figure is surprisingly high. But it’s not the fault of dampened market conditions— rather, 61% said their plan to sell was in response to the increasing regulations and taxes they face as landlords.
A large proportion (69%) of those asked also suggested that the costs of managing their property had grown “considerably” due to these changes, meaning the Government has succeeded in disincentivising buy-to-let. Indeed, 72% of property investors we surveyed believe current tax and regulation measures make life unduly difficult for landlords.
Furthermore, landlords hold little optimism for the future and the government’s upcoming plans, with close to two thirds (63%) saying they were deterred from considering new buy-to-let options due to the new regulations that are coming in as part of the 2020/21 financial year, commencing on the 6th of April. These vary but include mortgage interest tax reform and changes to private residence relief.
Understanding the alternatives to the buy-to-let market
Investing in property is not as rigid as one might initially think. The UK boasts a host of alternative avenues that can be used to invest in property outside the more traditional buy-to-let market. These include property development finance and debt investment. The former has been growing in popularity over recent years.
So, what is property development finance? In short, it refers to the part of the alternative finance industry that funds property projects. Investors lend their capital to a development finance firm, who then arrange for this capital to be loaned to developers and construction firms undertaking new-build projects. The investors benefit from the potential to earn significant returns, while developers enjoy fast access to the loans needed to fund their construction efforts.
With the Government committed to delivering over one million new properties by the end of its term in 2025, property development finance is naturally positioned to fuel the construction of much needed new-builds. At the same time, it provides much needed capital to property developers who can often struggle when attempting to secure finance from traditional lenders.
For investors, property development finance gives them the opportunity to benefit from real estate investment. With Accumulate Capital’s research showing a general sense of dissatisfaction amongst landlords, many are now considering alternative avenues of property investment. It was revealed that just over a fifth (21%) of landlords will be looking to these alternative avenues over the coming years. In many respects, this shift makes sense – property investors can keep their capital in bricks and mortar, without the additional workload of directly managing a property with tenants.
Supporting property investment in the UK
For professional landlords and property investors, all eyes are now turned to the 2020 Spring Budget on 11thMarch. Based on what we know so far, it looks as though there will be significant reforms affecting real estate investment. Rather than targeting landlords, however, the Government should instead be encouraging the construction of new-build developments if it truly wants to address housing affordability and availability. As demonstrated in the findings of Accumulate Capital’s research, landlords feel as though current regulations unfairly targets them – introducing more could lead to a mass landlord exodus.
Overall, I am keen to see the Chancellor introduce new measures to make sure the UK’s property developers are provided with the support they need to fund and construct more new-build homes. With more investors being drawn to property development finance, the Government should also use its current term in office to recognise just how this form of alternative investment can be creatively leveraged to increase housing supply. There remains a clear appetite for real estate investment – the question for them is how this demand can be used to the benefit of the wider property market.