The buy-to-let market has become increasingly frustrating for landlords in recent years. The phasing out of buy-to-let tax relief, combined with a ban on letting fees, deposit limits and a raft of other regulations, caused many to consider whether to invest. This hesitation naturally became heightened during the lockdown as, although the property market didn’t stop, many landlords paused expanding their portfolios.
However, as some of the restrictions imposed during the pandemic lift, we see green shoots emerging for the buy-to-let market. In fact, there was a mini boom when the property market ‘re-opened’ in mid-May, as the pent-up demand from a previously busy market came flooding in.
Now, the stamp duty holiday, announced by Chancellor Rishi Sunak in the Government’s summer statement, is a further positive move to encourage investors back to the market. Under the increased stamp duty threshold, property sales under £500,000 in England and Northern Ireland will be exempt from the duty until 31st March 2021.
Since the announcement, we are seeing demand in the sector on the up, and more tenants seeking homes, making now a good time for investors to enter the buy-to-let market. The stamp duty announcement presents a timely opportunity for investors to add to their portfolio and increase much needed rental supply, while still saving money.
How the stamp duty changes will affect the buy-to-let market
While landlords will still have to pay the extra three percent stamp duty surcharge on an additional or buy-to-let property, the potential savings from the higher threshold are still more attractive to landlords.
For properties valued around £350,000, the stamp duty holiday could lead to a saving of £7,500. Meanwhile, properties at £500,000, could lead to stamp duty savings of around £15,000 for homeowners and investors. This reduction looks set to re-balance the scale for landlords and can offer more favourable yields, making investments in the buy-to-let market more affordable and attractive.
The opportunity to make savings on property has prompted many buyers and sellers who weren’t considering selling their home post-lockdown to consider a move. The same is true for investors. We are already starting to see movement in landlords returning to property investment, with more than two thirds of mortgage brokers expecting to see the buy-to-let business stay stable or rise over the coming 12 months.
Indeed, there has been a documented surge in enquiries to agents for those looking for buy-to-let properties in the past month. Meanwhile, a quarter of landlords are planning to increase the number of buy-to-let properties they own this year, according to Rightmove.
When will we see market movement?
While 2021 sounds far off, the 31st March deadline isn’t actually that far away on the property market. According to View my Chain, the sale process takes up to 120 days, from viewing a property on the market through to completion. This equates to four to five months, so ideally investors will have made an offer by November or December to still take advantage of the discount. That means we will likely see increased movement in the market in the next quarter.
Of course, the expansion of properties on the market overall will also mean more properties to choose from for every potential buyer. Therefore, it’s important that potential landlords choose the right property and research wisely to make sure they are targeting the right rental market.
An increase in rental demand
Since lockdown eased and property viewings returned, there has been a spike in tenants looking to move all over the country. The rental market looks to be not only be getting back up to its pre-coronavirus levels in terms of tenants seeking homes, but actually surpassing it. According to Rightmove, overall rental requests are at a record high, with lettings enquiries to agents up 40% higher than July 2019.
Interestingly, the pandemic experience has also changed many tenants requirements for a home. Since lockdown, many are now looking for bigger homes with gardens and a separate space to work from home, with houses rising in popularity over flats. There is also a rise in those looking to move out of cities: 52% of London residents, 50% of Birmingham residents and 46% of those who live in Bristol have searched for property elsewhere in the past few months.
But at the same time, the supply of rental homes is lagging behind tenant need, with the number of new rental listings currently 4% lower than this time last year. This has also led to rising rental price pressure across the board, as asking rents outside London hit a record of £845 per month, up 3.4% on the same time last year, the highest annual rate since Q2 2016. This is only likely to continue unless more properties are added to increase supply.
The rental sector will grow greener
Stamp duty wasn’t the only scheme mentioned in the summer statement that will provide a boost to landlords. The £2 billion Green Homes Grant will help homeowners and landlords in England to pay for green improvements to properties, such as wall and loft insulation, draught proofing and double glazing.
The grant can fund two thirds of the cost of green works for up to £5,000 per property. The works will help improve the Energy Performance Rating (EPC) of a property, which is valuable to landlords, as following the most recent changes to EPC legislation, all rental properties need a rating of ‘E’ or better.
There is a growing focus on green homes across the country. We know more tenants are seeking energy efficient homes and the benefits they bring, such as an improved quality of living and a potential reduction in fuel bills. As applications for the Green Homes Grant scheme open from September, landlords can take advantage of the funding at the same time as the reduction of stamp duty. The scheme will help reduce greenhouse gas emissions and improve conditions and utility costs for tenants living in their properties, while also saving landlords money and increasing the value on their investments.
The stamp duty holiday is a great window of opportunity
Following the boost that the summer statement has given to the property sector, now is a great time for investors to enter the buy-to-let market. Those looking to expand their property portfolios should start now to benefit from the savings the stamp duty holiday and the Green Home Grant will provide. With house prices and demand on the property market set to rise – and indeed already increasing – investors should also aim to avoid a long chain, which may impact purchase time, and invest in the next few months to benefit from the current prices and savings.
There is no doubt that the stamp duty holiday is a great window of opportunity for investors to save thousands over the next few months. But beyond that, the news from the summer statement is welcome to reignite the buy-to-let market. As landlords return to invest, we will see growth come back to the buy-to-let sector, boosting the rental market overall.
Michael Cook, National Lettings MD, LRG