There is no doubt that there have been significant changes to the UK property market over the last few years. We have seen the introduction of new regulations, increased costs and to all intents and purposes private landlords have become the devil incarnate in the eyes of many. This wholly unfair situation has prompted many to ask the question, does property investment still offer long-term potential?
The recent headlines suggest that UK immigration will fall significantly if/when the UK finally leaves the European Union. Those who pen these headlines seem to forget that the UK also enjoys visitors from all around the world. It is also inconvenient to suggest that those from the European Union will simply move to the worldwide immigration system for the UK. Immigration will continue, the UK population will continue to grow and demand for private rental accommodation will still arise.
In some ways it does seem as though recent regulatory changes are targeting private landlords and attempting to squeeze them out of the market. This may well have been the case if Theresa May had remained in power with a quasi-left-wing approach to private landlord regulations. However, after her resignation we can expect the next Tory leader to have right-wing leanings with the potential to unpick some of the recent changes to buy to let/private accommodation regulations. In the long term regulations do balance out and this is not necessarily a major problem.
Demand for private rental accommodation
While each political party seems intent on “increasing social housing spending” the simple fact is that there is no money available. Government budgets are still stretched, there is still a growing national debt and in many ways the social housing sector is paying the price of the right to buy sell-off. Suggestions that the next government, whether left or right leaning, will be able to find money for social housing is certainly a stretch of the imagination. The UK will depend more and more upon private rental accommodation and a strong buy to let market.
While it is fair to say that HMO properties do tend to attract double-digit yields, far higher than traditional private rental properties, they are both extremely attractive compared to current base rates. There is also the potential for long-term capital growth coupled with relatively low mortgage rates as a consequence of the low base rates. In many ways it was the attractive rental yields which forced the UK government to increase costs and regulations to combat these “excessive returns”.
Lack of skilled construction workers
As a consequence of Brexit there have been concerns that the UK building sector will struggle to attract the required number of skilled workers going forward. It would be remiss to suggest there are no issues here but long-term investment in apprenticeships will certainly begin to pay dividends fairly soon. At the end of the day, if the cost of building homes is increased as a consequence of higher labour rates then this will simply be passed on to tenants and property buyers.
A quick glimpse at the property headlines they may suggest that the UK property market is in trouble. However, digging a little deeper there may well be short-term fluctuations and challenges but in the longer term the UK property market still has significant attractions. Many experts also believe the next Tory party leader will be more right wing with a greater emphasis on capitalism, investment and business.