The UK property market is flourishing, and historically, the Buy-to-let sector has been one of its most essential components. In recent years, the UK Government has made profiting in this sector tougher. Paul Howells offers us his views on whether it is still a viable business.

As the UK’s property market continues to enjoy heightened demand as a result of the stamp duty land tax (SDLT) holiday, some property specialists are concerned about the viability of the buy-to-let market.

Although transaction levels remain high and the rate of house price growth recently reached an 18 year high, according to the Institute of Charted Surveyors, landlords continue to feel overburdened with excessive regulation and taxes.

Back in February, Accumulate Capital was already researching this issue in detail. We commissioned a survey to measure just how landlords felt about the future of the buy-to-let market. The resulting figures were insightful, to say the least. Almost two thirds (63%) felt actively discouraged from considering any new buy-to-let investments due to oncoming landlord-focussed regulations due to be implemented in the 2020/2021 financial year, while 72% felt that stifling regulations had made life unduly difficult for landlords generally.

These new measures, including mortgage interest tax reform and changes to private residence relief, all incur either added responsibilities for landlords or new costs involved in renting out a property to tenants.

In the face of these added burdens, many respondents simply decided to exit the buy-to-let market. Three-fifths (61%) of those Accumulate Capital surveyed earlier in the year said ongoing waves of regulations meant they were considering selling off their existing property assets.

Of course, regulation is an integral part of protecting both buyers’ and sellers’ interests within any given market. However, measures entirely aimed at landlords introduced by successive governments without a unified strategy risks deterring property investment. Landlords clearly feel as though regulations are unfairly weighted against them, and desire a more collaborative approach so that the interests of all parties involved in the private rental market are protected.

However, it’s important to note that this survey was conducted before the true impact of COVID-19 on the UK’s property market was realised. Naturally, it makes sense to revisit this topic and understand how the pandemic has affected those involved in the buy-to-let market.

Coronavirus and Landlords
When reviewing COVID-19’s effect on the UK’s rental market, it’s impossible not to discuss how the ‘home-working revolution’ has affected renter demand. This is a particularly pertinent point when looking at the impact of the coronavirus on those who work in the capital. Rather than living in London close to one’s office, newly home-bound professionals have been migrating away from the capital in favour of cheaper, more spacious lodgings elsewhere. Recent Rightmove statistics illustrate this, with some London boroughs seeing drops in rental searches of -40%.

In response to slowing rental demand in the capital, landlords across the city have been slashing their rents by as much as 20% in a bid to either retain tenants or sign new contracts. This is not something that is solely affecting London but rather a situation more and more landlords are finding themselves in.

For example, last month, the National Residential Landlords Association found that two thirds (66%) of British landlords expected to be negatively financially affected by the pandemic, despite government efforts to protect homeowners.

When we take into account the challenges landlords already faced pre-pandemic, these latest trends are not comforting. In many respects, this could result in a mass exodus of landlords selling their rental properties over the coming months.

If buy-to-let is no longer as viable as a property investment avenue, then; what other options are there for those seeking to hedge against COVID-19 uncertainty?

New avenues of property investment
Despite the much-lauded benefits of the SDLT holiday, it simply cannot make up for years of undue pressure on landlords in the form of stifling regulation and ever-increasing taxes. With the rental market currently undergoing multiple shifts in demand – from urban to rural, central to spacious – the buy-to-let property market has become incredibly difficult to navigate.

This is not to say that UK property generally has become a less desirable investment destination. On the contrary, with consistently rising house prices, a low-interest-rate environment, and steady demand for property; British real estate allows investors to hedge against potential future COVID uncertainty. This is all the more relevant given the historical resilience of property as an asset class during times of economic volatility.

So, as a result, I expect alternative property investment streams such as debt investment or property development financing firms to surge in popularity in the coming months.

With investors eager to take advantage of the UK’s post-pandemic property pandemic but being turned off traditional buy-to-let investment due to reasons outlined above, previously overlooked alternate assets may prove particularly fruitful for those seeking returns in the long-term.

If the alternative property investment industry is adequately equipped to offer the investment schemes such as investors are looking for, I look forward to seeing a resurgence in this type of investment sooner, rather than later.

Paul Howells is CEO of Accumulate Capital – an investment and property development finance firm. Accumulate Capital connects registered investors with developers in the property development finance sector to enable selected, high-yielding projects in the UK and overseas.

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