Is Buy-to-let still a viable option despite Brexit uncertainty?
With Brexit uncertainty, the buy-to-let market has come under more pressure especially with house prices falling some landlords have been forced to leave the market, whilst others will want to wait and see how things play out. Despite the uncertainty, property remains one of the best asset classes for potential landlords to invest in with an average yield of 25% per year.
The private rented sector (PRS) has undergone substantial growth and change in recent years, the number of households in the sector grew by 25% to 4.5m since 2010. Landlords can still benefit from this growth despite Brexit as many people would opt to rent instead of purchasing a home. Findings show that landlords generate 42% of their gross income from rental properties, 53% plan to keep their number of rental properties at the same level, but 11% of landlords are actively planning to grow. In addition, Brexit is likely to lead to a rise in vacant properties, currently over 200,000 homes have been empty for over 6 months with this figure rising. This means that landlords will be in a greater position to increase rents as the housing supply decreases. Rent increases are more likely for landlords who use agents (50%) compared to those who self-manage as well as some landlords requiring a larger deposit.
On the other hand, it can be argued that the buy-to-let market has become more professional and those with smaller property portfolios would have been forced to leave the market. The EPLS found that 94% of landlords are sole traders rather than companies. This means that most landlords are juggling managing their portfolios whilst holding down a full time job, although 45% of private landlords own just one property. Furthermore, Brexit will have an obvious impact on the overall rental demand in the UK. EU tenants make up a large proportion of the rental population - private landlords will see their profitability plummet from 23.5% to 11.6%. This is due to the fact that current EU residents in the UK are starting to look elsewhere as Brexit becomes reality.
To conclude, with the recent changes on stamp-duty and mortgage tax-relief - landlords with smaller portfolios may consider selling their properties or leaving the market all together. Along with the uncertainty surrounding Brexit, landlords may be faced with smaller profits than previously experienced as house prices continue to fall. However, property still remains one of the most profitable asset classes and the private rental sector has grown to account for around a fifth of all households.