On 11 March 2020, the Government will deliver its 2020 Budget. It’s been a long time coming, too, given the last fiscal announcement was due to be delivered in early November but was ultimately delayed due to the snap election.
The 2020 Budget will be Chancellor Sajid Javid’s first real opportunity to lay down his vision for the UK economy over the coming five years. As such, the property sector will rightly watch on with interest.
For landlords in the UK, the significance of the Budget cannot be understated. Ongoing changes to the regulatory measures governing the buy-to-let (BTL) market and Private Rented Sector (PRS) over recent years have placed considerable pressure on landlords; they have been confronted by changes to BTL mortgage tax relief and stamp duty surcharges, not to mention amends to Section 21 regarding unfair evictions and the introduction of the Tenant Fees Act in June 2019.
Such measures are designed to address some of the systematic challenges facing the UK property market. Correctly, the Government is protecting renters’ rights. At the same time, by deterring people from entering the BTL market, Westminster is seeking to free up the number of homes available for homebuyers. Or so the theory goes.
In reality, addressing the imbalance between supply and demand cannot be solved by targeting landlords.
Current regulatory measures are pushing landlords out of the BTL market
We can already see the impact the aforementioned government reforms are having on landlords in the UK. An independent survey of 750 property investors commissioned by Accumulate Capital revealed that 37% of landlords plan to sell at least one of their properties this year. Of those, 61% say they are doing so as a result of increasing regulations and taxes.
The survey also revealed that 72% of landlords believe current tax and regulation measures are unfairly weighted against landlords, with 69% saying the costs of managing their property portfolio have risen “considerably” in the past five years. As a result, 53% of the landlords surveyed said they would not have purchased their properties in the first place if they had known how tightly regulated the PRS was to become.
Looking to new property investment avenues
Importantly, while the majority of landlords are struggling under the weight of new regulatory measures, they have not been put off real estate as an asset class. Rather than entering the BTL market to enjoy the benefits that typically come from property investment – long-term capital growth and secure returns – investors are turning to new opportunities.
The aforementioned Accumulate Capital research revealed that over a fifth of landlords (21%) are considering alternative property investment avenues like debt investment and development finance. These alternative investment avenues ensure investors can harness the value of bricks and mortar but without having to worry about managing a property portfolio or conforming to BTL regulations.
A balanced system for landlords and tenants
The 2020 Budget is an ideal opportunity for the Government to address the current challenges facing the property sector.
Accumulate Capital’s research reveals a collective feeling of frustration amongst landlords, which is encouraging them to leave the BTL market. The Government must strike an effective balance to ensure the interests of both landlords and tenants are recognised and protected. Introducing a further round of changes to the PRS will only increase the pressure currently being felt on homeowners leasing out their properties. In turn, this could lead to more landlords selling up.
Regardless of what the Chancellor announces on 11 March, the reality is that many property investors will be turning to new investment avenues like property development finance. Not only does it mean they no longer need to worry about current and future regulatory changes to the PRS – there is also the potential for significant returns to be made.
Property development finance can play a vital role in providing construction companies with the finance needed to complete new-build properties. By doing so, this form of investment fuels growth in the housing market, ensuring there are more affordable properties on the market for prospective buyers.