On 11th March, Chancellor Sajid Javid will deliver this government’s first major fiscal statement. In many respects, it has been a long time coming. Recent fiscal statements have been notably light on reforms due to the uncertainty surrounding Brexit. This budget will be different – it is the first of the parliament, the first of the newly elected government, and first of the decade. As such, it will be closely watched by businesses and investors involved in the property market, including landlords.
It’s no secret – landlords have been massively affected by a barrage of reforms in recent times. Take 2019, for example — buy-to-let investors were faced with new changes to buy-to-let tax relief and Section 21, not to mention the introduction of the Tenant Fees Act. Owning and renting a home is now a laborious, wearisome endeavor.
Most of these changes are well-intended and have the simple aim of increasing housing stock and protecting tenants. Demand and supply in the UK are currently imbalanced, making it difficult for some to get on the property ladder. Understandably, the government is trying to redress this issue with reform.
However, the changes that have been implemented seem to disproportionately target landlords. So how much regulation is too much regulation?
Striking the right regulatory balance
Regulation is necessary to rebalance the market and keep properties up to the right standard. In an effort to understand just how much is appropriate, and how those in property are reacting to the current state of affairs, Accumulate Capital carried out a survey of 750 landlords.
The results were alarming; more than one third (37%) had plans to sell their property this year. This is a large proportion, suggesting the buy-to-let space has become significantly less appealing in recent years. Moreover, 61% of that number said their decision to sell property was as a direct result of recent government reforms — specifically, increases to regulation and tax.
Many landlords even appear to regret their decision to acquire property, with more than half (53%) suggesting they would not have bought their properties had they been able to predict the current regulatory landscape.
Real estate will continue to be an attractive asset, which is why those frustrated with the buy-to-let space look likely to consider alternative avenues of investment. Debt investment and development finance, for example, are growing in popularity – allowing investors to benefit from the capital growth of real estate while removing the additional labour and hassle of managing a property. According to the Accumulate Capital research, 21% of landlords are looking to these kinds of new investment options in 2020.
Time to stop targeting landlords
The future success of the UK property market will depend much on how the government is able to increase housing supply to meet pent-up demand, meaning that a budget that encourages property developers is now needed. More new-builds, especially marketable, well-connected ones, will give the sector the foundation to make a success of the 2020s.
Again, property development finance has an important role to play here. Landlords clearly want to benefit from the advantages that come with real estate investment. Property development finance is an attractive avenue for them. As the aforementioned Accumulate Capital research shows, increased regulation might drive landlords from the private rental sector, but not from property as an asset class. By helping to fund new-build developments, they can benefit from competitive returns without the need to worry about the ever-changing regulatory environment presented to them as part of a traditional buy-to-let investment.
I now look forward to the 11th of March, when the government will be able to implement such measures. I also hope they use the opportunity to reconsider, and at the very least review, existing buy-to-let regulations that have been implemented over the last few years. There needs to be a realisation that introducing more and more regulations to the buy-to-let market will not address the systematic challenges facing the housing market.
Paul Howells, CEO of Accumulate Capital
Paul Howells is CEO of Accumulate Capital – an investment and property development 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.