With Brexit looming, there are pressing questions about how the buy-to-let market will be affected when the UK finally pulls out of the EU in March 2019.
Some investors see the cut off from Europe as a blow to the buy-to-let market. Yet there are others that believe Brexit will present unique opportunities for investors looking for high yields and sustainable investments.
In this article, we discuss the potential advantages and disadvantages of Brexit on the buy-to-let industry and explain how as an investor, you can thrive in a post-Brexit market.
The State of the Buy-to-Let Market Pre-Brexit
When the 2016 referendum result was announced, it didn’t take long for panic to spread about a potential housing market crash. Despite this, the housing market remained buoyant. And over the last 2 years, buy-to-let investors have continued to take advantage of a lucrative rental industry.
Interest rates have also remained low, which has made it easier for investors to obtain high yields on property. This is especially true of property in the north of the UK where the prices are much lower than the UK average.
However, 2018 has also welcomed new tax changes ahead of Brexit to the private rental sector that have made it more challenging for some landlords to expand their property portfolio.
These changes have been introduced by the government in an attempt to make the sector more professional. But, as a result, some private landlords have struggled to get mortgages approved for new buy-to-let property on an individual basis.
Combined with the imminent Brexit date, these changes have left the buy-to-let sector in low spirits.
The Impact of Brexit on the Buy-to-Let Sector
There’s no doubt that Brexit will have an impact on the rental housing sector. Realistically, the effects will be both negative and positive. For buy-to-let landlords, it’s important to recognise that among the challenges, there will also be unique opportunities to take advantage of.
Negative Effects of Brexit on the Buy-to-Let Market
After Brexit, immigration from mainland Europe will decrease. There is speculation that this will reduce the overall UK housing demand. As a reduction in housing demand would affect the rental sector first, there are fears that the buy-to-let landscape would be weakened.
In addition, the drop in the pound has paved the way for foreign investment in the UK. This has made investments more obtainable for those living abroad. However, for UK investors, it’s heightened competition on their turf. Due to the lower cost to foreign investors, they are able to secure higher yielding property. This means higher yielding property is more likely to be snapped up by those living abroad.
Positive Effects of Brexit on the Buy-to-Let Market
While the reduced immigration from Europe may wobble the rental sector initially, it’s more likely to have an impact on bigger cities such as London.
The fact remains though that the UK doesn’t have enough homes. This means that the overall housing shortage will continue to prop up the rental sector. And even in a post-Brexit landscape, there will still be opportunities for buy-to-let investors.
In addition, would-be owner-occupiers are dealing with a rise in property prices and are struggling to obtain mortgages. This makes them dependant on the rental sector. Furthermore, as personal concerns about Brexit grow, a hesitance to buy property during uncertain times is likely to prompt more people to rent. This will provide private landlords with the ongoing opportunity to provide people with homes in the interim.
Lastly, the general attitude about buying property has changed. More millennials are opting to rent rather than buy. Younger people are choosing rented homes in central and prime areas over buying their own property. The effect of Brexit is likely to enhance this movement, with flexibility becoming more important in times of political uncertainty. This will create a lucrative pocket of opportunity for buy-to-let investors going forward.
Buy-to-Let Success Post-Brexit is all About Location Hotspots
It’s clear that there will be buy-to-let opportunities for private landlords after Brexit. However, securing the right property location will be key to generating high yields.
While London has been the go-to place for investment property for some time, it’s likely to see a downturn in rental demand post-Brexit. This is because the capital city is a key area for European immigration, and therefore more likely to see a rental demand decrease.
This potential for dwindling rental demand combined with the high property prices in London means it may become more difficult for buy-to-let landlords to generate high yields there.
Instead, buy-to-let investors should turn their attention to the north of the UK after Brexit.
Even with Brexit approaching, property in the Northern Powerhouse offers great growth and yield potential.
Rental demand is growing due to huge investment in several northern towns and cities, making property there a safer, and more profitable alternative for buy-to-let investors. Furthermore, the reliance on European migrants to grow these local economies is lower than London.
Combined with property prices lower than the UK average, this represents a key opportunity for investors wanting to generate high yields.
Coping with New Tax Measures
Overall, Brexit won’t be as disastrous for the rental sector as some may have feared. In fact, the UK leaving the EU may present private landlords with fruitful new opportunities.
It’s the 2018 tax changes which will present the biggest challenge to buy-to-let landlords going forward. For investors wanting to continue to make high yields, they’ll need to consider how they shape their property investment business model.
Setting up a limited company in order to buy buy-to-let properties seems to be the best workaround. According to the Buy Association, “42% of landlords with portfolios containing four or more properties intend to operate through a limited company in the year ahead, compared to 31% of those with up to three properties.”
For serious buy-to-let investors wanting to continue to see profits post-Brexit, changing to a limited company could be the workaround that’s needed to continue seeing higher profits from property investment.
There’s a chance post-Brexit that the 2018 tax restrictions will have a positive effect for serious buy-to-let landlords.
With many amateur landlords choosing to leave the private rented sector, there’ll be less competition for the more lucrative properties. This, combined with the growing rental sector in a post-Brexit Britain, means now could be an exciting time to be a serious property investor.
Buying Buy-to-Let Property After Brexit
At Fitzwilliam Capital Partners, we’re your eyes and ears on the ground when it comes to property investment. We’re constantly working with the market to find our investors the best, more lucrative investment opportunities – despite challenges in the industry.
Specialist bank Aldermore recently reported that more than four out of ten UK landlords expect the private rented sector to grow going forward. And 17% plan to expand their buy-to-let portfolio. Our expert knowledge of the private rented sector combined with this leaves us confident that the investment market is a fruitful and profitable place to be.
In addition, we only invest in areas where we’re confident we’ll see continued growth in spite of any broader negative impact of Brexit. We invest in areas where long-term investment is already secured, where rental demand is growing and where investors will continue to see high yields into the future.
So, if you’re a buy-to-let investor and you’re interested to learn more about our Brexit Proof investment opportunities, talk to us today. Our advisors will talk you through your best options as a buy-to-let investor.
You can also take a look at our current investment properties.