Talk of a buy-to-let bubble has reared its ugly head again recently, with doomsayers once more predicting a market crash.
Such pronouncements have been prompted by the recent spate of four interest rate rises in less than a year. This has put pressure on landlords and squeezed their profit margins. It is true that rents haven’t been rising as fast as mortgage costs and some landlords are undoubtedly struggling to make the numbers add up.
On top of monetary concerns, the onset of tougher legislation is making life harder for landlords. Tenancy deposit schemes and rules about houses in multiple occupation are two extra headaches for investors.
To top it all, Revenue & Customs is also putting the boot in. A recent story on the front page of the Times discussed a crackdown on buy-to-let, suggesting that 80,000 landlords were to be targeted for offsetting the capital part of their mortgage repayments – rather than just the interest – against rental income for tax purposes. This prompted a slew of coverage in the left wing press complaining about the fact that landlords receive tax relief on their mortgage payments in the first place.
Of course, no mention was made of the fact that the quality and supply of rental accommodation in this country has improved beyond all recognition since the dark days before investors piled into the sector.
Then there have been plenty of other tales of landlords subsidising their buy-to-lets out of their own pockets because rents aren’t keeping pace with spiralling mortgage costs. So what? Some of our clients were dipping into their pockets each month to make up the shortfall in mortgage payments long before interest rates started rising.
The point is that they are in buy-to-let for the long term, which is how it should be when it comes to property. This is encouraging.
They see the situation as being similar to contributing, say, 100 to their pensions each month. There may be peaks and troughs in house prices over time, but property tends to appreciate in value.
There is not enough supply to meet the demand for housing and until that situation changes it is hard to see house price growth reversing into a long-term decline.
The buy-to-let market may be experiencing a wobble but it is just that. It’s unlikely that we’ll see a mass exodus from the market – after all, where would investors put their money if they took it out of property?
Investors are a hardier bunch than they are often given credit for and they will ride out this storm. They will comfort themselves by thinking about the silver lining that as house prices flatten out, their yields will improve.
And until interest rates start to fall again, they will simply tighten their belts and make up the shortfalls in rental income themselves. In many cases, we may only be talking about cutting back on dining out once a month – not too much to contend with when you consider the benefits of being in property for the long term.