In spite of tax hikes in recent times, it is safe to say that there is money to be made from property in the coming years. Based on a recent report from Allsop, if you are looking to beat savings rates in the long-term, then you should look to buy-to-let investments.
According to the survey, 37% of landlords expect rents to increase over the next six months. 44% of them expressed a positive outlook in relation to their letting portfolio over the next three months, as data from the report indicated that their expectations were ‘good’ or ‘very good.’
Buy to Let Finance Must Improve
There are however some challenges to be seen. Although there is the potential for buy-to-let investments to beat savings rates by a large margin in the future, the report revealed that there was a fall in the percentage of landlords willing to purchase one or more property in the coming year, to 16%. This is recorded as the lowest level in four years, and comes as 83% of landlords reported that it has become more difficult, especially in the last six months, to get buy to let finance.
East Midlands and Yorkshire Top of the Pile
Allsop Rent Check made the analysis by calculating the estimated annual return for each region, for three, five and ten year periods. The calculation was done after tax for basic 20% and 40% payers. Finance as well as legal costs, rental yields and house price growth and running were also analysed.
The variables used in the analysis included borrowing on a 145% rent cover assuming the interest rate was 5.25%, a fixed term mortgage for five years at an interest rate of 3.25% and 4.5% for the remainder of the term, and 25% of income for running costs.
East Midlands and Yorkshire were found to be the top performing regions, when national forecasts for wage growth and house prices from the Office of Budget Responsibility were used. It was found that returns were 11.25% per year over a period of five years and 9% per year for a 20% and 40% tax payer respectively.
London Modest Returns but Still Strong in the Climate
With 5.75% per year for 20% tax payers and 4.75% per year for 40% tax payers within the same time period, London was recorded as being the worst performing region.
Paul Winstanley, partner at Allstop, indicated that buy-to-let investments have the potential of yielding more returns than savings accounts in the long-term. As such, it is an area to be considered by those with equity to invest. This, he said, does not come without challenges as tax changes and the lending conditions are problematic for landlords. He explained that most of the landlords are in it for the long term and although some will leave as a result of the tax changes, long-term private landlords still play a major role in housing the population.
‘’As long as there are no new tax rises targeting landlords, buy-to-let will remain a stable and attractive sector for long-term investors,” he added.
