As the UK government staggers from disaster to disaster in Brexit negotiations there seems to be a growing consensus that the buy to let market will suffer. Already we have seen some buy to let investors jettisoning their property assets amid concerns that demand could fall and prices/rental income follow. There is no doubt that the ongoing Brexit difficulties have created this mindset amongst some property investors but are they right? Is the buy to let market really on its knees?
Those who follow the housing market fairly closely in the UK will be well aware that the number of new build properties has for many years fell short of annual demand. As a consequence, the UK is literally hundreds of thousands of new build properties behind the curve and despite positive noises from the government this is not an issue which can be fixed overnight.
Starving the market of new build properties focuses the attention of buyers on the relatively small number of properties available thereby creating competition and pushing prices higher. Yes, in the short term it does look as though Brexit concerns will lead to softer prices but what about in the long term.
A growing population
Constant concerns that Brexit will lead to a significant reduction in the number of people moving to the UK has to a certain extent given the impression that the UK population will show very little if any growth in the short to medium term. The reality is that those looking to move to the UK from Europe will still be able to do so although the process will be the same as those moving from outside of Europe, free movement will disappear. So, as the UK population continues to grow and life expectancy increases this will place renewed pressure on the private rental sector.
Buy to let finance
If you believe that the UK buy to let sector is under serious threat then just look at the specialist buy to let lending banks. There is growing competition amongst not only the traditional buy to let lending banks but finance platforms such as crowdfunding which are reducing costs for investors and increasing available funding. The new PRA rules on underwriting will ensure greater emphasis on affordability, especially amongst those with relatively large buy to let mortgage exposure, thereby adding a further layer of perceived security. That cannot be a bad thing for the market.
While those concerned about the short term prospects for the UK buy to let market may be happy to sell up and reduce their exposure, many experienced investors are more than happy to pick up the slack at lower levels.
While there has been a significant shift to the political left in many countries, in light of the 2008 US led economic crash, entrepreneurial spirit still lives on in the UK. Long-term income streams with potential for long-term capital growth offer a very useful backbone for many different types of investor. Even though the UK government has increased tax charges for buy to let investors they cannot keep on picking the pockets of property investors forever.
Once the smoke surrounding Brexit clears, whether or not a deal is agreed, the short, medium and long-term prospects for the UK housing market will become clearer. It is difficult to say with any great certainty what will happen in the short term but if, as expected, the UK population continues to grow, and social housing is unable to provide sufficient state funded accommodation, the private rental sector is certain to benefit.