Private landlords across the UK private are feeling the squeeze. In 2018, the Ministry of Housing, Communities and Local Government’s English Private Landlord Survey revealed that nearly half of landlords let out just one property but are increasingly selling up.
Over the last few years stamp duty has increased, tenant fees have been banned and there are tax rules that prevent landlords from offsetting their mortgage interest payments against their yearly tax bill. There are also tougher rules around securing a buy-to-let mortgages. Add to that the uncertainty about Brexit and you have a list of reasons for some potential landlords to hold back.
Property investment sounds like a dream investment and the idea of having a portfolio of properties to renovate, while living off the rent of tenants, sounds ideal. However, uncertainty can be the biggest issue.
One London property investor began investing in property nine years ago, with the hope of building financial security for his growing family. He had hoped to build a safety net in case ‘something unexpected’ occured but also to create a property portfolio that would support them in retirement.
However, the challenges he faced as a new landlord had led to higher costs than anticipated. He also complained of holding rooms for tenants but a failure in the property chain had led to drop-outs far exceeding the one week holding deposit that landlords are now allowed to charge. While he accepted the costs of his chosen property business he had concerns about the stability of his business model in the event of new regulation.
Some argue that changes in legislation have not directly hit landlord’s pocket but have instead made the process more difficult as a whole.
Business school professor and creator of The Money Principle website, Maria Nedeva, has strong views on the issue of legislative changes. She said: “For me, these actually make very little difference when it comes to investing in property. All they do is increase cost and hassle.”
Maria believes that property is not always the first thing you should think of investing in, unless you can outsource the management and maintenance to relieve some of the pressure. She believes that property as an investment can be “capital intensive, illiquid and prone to hassles” and is keen to promote other forms of investment. She said that one problem faced by landlords was not having a large enough portfolio to warrant employing another person to sort out the problems.
To avoid the financial burden of a property being idle while the landlord spends time advertising and refurbishing, she suggested crowd-funding a portfolio of properties.
She said: “We have stakes in several houses through one of these, it’s a peer-to-peer lending company that buys liquidated buildings, updates them, then rents them out, eventually selling them. It’s more of an experiment than a serious investment, but it’s been paying out a reasonable dividend and it’s absolutely no hassle. The drawback is that you don’t know when the property will be sold so it’s unlikely you’ll make a lot of money.”
So, what about the humble pension?
We all know it’s important to begin saving for your pension and retirement as early as possible. If you’re thinking of investing in the property market with the aim of funding your latter years then you should follow these pointers:
- Read up on all the current laws that are affecting landlords so you can work out what you stand to gain;
- Consider if you will be managing the properties yourself or hiring a third party;
- Research landlord insurance and weigh up the positives and negatives;
- Don’t forget your pension plan; it is always good to have a back up plan, and the rules and regulations of being a landlord are constantly changing.
The Intermediary Mortgage Lenders Association has called for any further changes by the government for private landlords to be halted. IMLA’s said that government intervention had adversely affected the market and people’s appetite to invest, and that a clearer, longer-term plan from government needs to be agreed so that those who hope to rely on property in their retirement will not face such a worrying time in their later years.
If you’re buying property to let out as a landlord, make sure a Chartered Surveyor provides you with a building survey to identify the problems hidden your new property to help you safeguard your investment from unforeseen expenses.