Is buy-to-let still a good investment in 2023 UK?
Walking a tightrope is precarious – much like the situation in the rental market in the UK with the current economy and inflation. Many landlords are caught on the tightrope, trying to make a decision between two opposing plans of action. Should or should they not sell? Ironically, this could lead to promising investment proposals for property investors. As the Sittingbourne estate agents can explain, this scenario can prove that buy-to-let can still be a good investment in 2023.
Given below are a few reasons why this could be so.
Tax increases: Rising inflation has increased interest rates which have resulted in more expensive mortgages and difficulties with remortgaging. Landlords of buy-to-lets pay tax on the total income rental, as against earlier times when the mortgage payment was deducted for tax benefit. Also, stamp duty for a buy-to-let property is higher. Some landlords feel dealing with all these regulations is just not worth it and are willing to sell, even at a reduced rate. Such “motivated sellers” – those who may need to draw on the equity tied up in their property or need to relocate in a short time – should be sought out, as they will provide an opportunity to bargain for a reduction in price. Any discount that is obtained converts to property equity which, in turn, can improve the returns on income too. For those investors with foresight, looking at the long term could prove to be really beneficial.
Maintenance and EPCs: More tenants, especially the younger ones, are looking for more “green”, environmentally-friendly places to stay, where heating costs will be less. Also, with the mandatory EPC (energy performance certificate) ratings, some landlords are not willing to spend more on materials and labour to upgrade the property. They may be willing to sell at a lower price. Alternatively, new builds will already have the latest fittings installed for a low carbon heating system and will not require renovations. For a prospective investor, these factors should be considered.
Location: When looking for rentals, the area needs to be checked out. Unaffordability to purchase a house for first-time buyers has increased the need for rentals. Demand has increased in certain areas, especially for the student and working population, where there are universities or cities close by. For instance, providing rental accommodation for those living in Sittingbourne could meet the demand. With good commuter services and being an upcoming industrial location, Sittingbourne and the county of Kent would be ideal for renting accommodation.
Supply against demand: Although it seems there is a slight fall in property prices, the ever-present lack of supply against demand will always ensure that prices do not plummet. Some nervous owners may look for an opportunity to sell, before they feel prices will further decrease. However, for those investors looking positively at the future, where there lies hope for a rise in prices, the opportunity to buy a property at a lower price should not be overlooked. Also, with the government legal PDR (permitting development right), many vacant and disused commercial buildings could be developed into residential property. The regulations regarding this will have to be studied. However, for a prospective property buyer, especially in areas where the demand is high and exceeds the supply, it could be profitable to invest in such a conversion.
Limited company: For a private landowner, selling a property can attract an increase in capital gains tax. Similarly, the income tax could skyrocket for a private buyer. If the purchase is made through a limited company, the corporation tax would be much lower. Some landlords, especially those in the higher income tax bracket, are looking at purchases through a limited company. The pros and cons of this will need to be thoroughly researched.
Conclusion: In general, the rental market remains high. Even with the uncertainty of the future, property investment creates an “inflation hedge” which protects the investor against a decrease in the purchasing power of money due to inflation. Hence, it is a more dependable method of investment. Other advantages of buy-to-let is that there will be a rental income (even if it is currently lower than hoped for). Simultaneously, capital growth will be created as the value of the property increases. Know how much is the property worth, booking a free property valuation. Also to be looked into is the possibility of taking insurance coverage against loss of rental income, legal costs and damages. It is no doubt a risk, but for those who are willing to walk the tightrope, buy-to-let could still be a good investment this year!
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