5 changes you need to know about the UK residential property investment landscape

1. Political changes: exaggerating, but not causing a slowdown

2. Economic changes: guiding long term demand increases

3. Social changes: Growing demand for affordable, quality housing and yield-focused investment

4. Technological changes: making investing more accessible

5. Legal and regulatory change: shifting the balance of power from smaller investors

  • Changes to Mortgage Interest Relief via ‘Section 24’ make ownership by individuals of buy to let property less attractive. Holding a property with a mortgage for a higher, or nearly higher rate taxpayer has shifted from being a profitable side-line business to a real loss. If mortgage interest was 75%+ of rental income on a property before, the investor owning this property in their personal name will in the new regime will now begin making a loss.
  • The Stamp Duty Land Tax surcharge (an additional 3% on top of this transaction tax) makes buying more residential properties to hold or develop less attractive. With the surcharge, SDLT would be £9,000 rather than £2,100 on a purchase price at about the average of UK properties, £230,000.
  • New lending standards from the Prudential Regulation Authority have caused friction on the financing side. For landlords with 4+ properties, borrowing is harder.
  • Greater scope of licensing means strong and specialist local and national market knowledge is required by active parties.This includes more, and more stringent local and national regulations, from national House in Multiple Occupancy (HMO) licensing, to selective licensing of private rental properties in specific geographies.
  • The Tenant Fees Act of 2019 shifts costs from the tenant to investors, meaning lower returns to traditional buy to let investments.
  • Other taxes such as the Annual Tax on Enveloped Dwellings add to the cost base and administrative burden of property investment in company structures.
  • Meanwhile, tax reliefs such as for Build to Rent (scaled development then holding), or REITs (funds which focus on holding property) make institutional investment easier, and make it harder for smaller investors to complete.

Conclusion

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References:

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Anna Clare Harper

Anna Clare Harper

Anna Clare Harper is a UK Property Investment Strategist, CEO of property asset manager SPI Capital, author and host of property & investment podcast The Return