Slowing Property Prices Force Buy-to-Let Rethink In The UK

Naturally, good research is central to every kind of investment including buy-to-let. With the current state of the property market, however, it is more important than ever before. …

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Naturally, good research is central to every kind of investment including buy-to-let. With the current state of the property market, however, it is more important than ever before. Various factors are causing shifts in the way buy-to-let should be approached, and decelerating prices in particular are forcing landlords to rethink their strategies.

For instance, now that house prices are not rising so quickly landlords are being left with lower returns from their property’s value. This shifts the emphasis further towards rental returns, and it is more important than ever to ensure that a property can be reliably filled and economically rented in the long term. This, in turn, makes it more important than ever to conduct detailed research in order to assess a property’s potential as an investment. Where once many properties continued to generate returns in capital growth even if renting was lackluster, it is now vital to ensure that it can be profitably tenanted.

Despite this shift in the market, and a fall in mortgage lending according to figures from the British Bankers’ Association, a miniature boom is currently hitting the buy-to-let sector. Though it hasn’t quite hit the levels seen a few years ago, many organizations and companies are releasing figures showing significant growth over the past year or so. This is partly driven by investors noticing the pressure that is increasingly being placed on the market by population growth, an increasingly young and mobile workforce, increasing immigration, and a lack of new social housing thanks to the tight finances of local authorities. This leads many investors to conclude that even though value growth is slowing at present, property ownership will pay off in the long run as demand keeps being pushed upwards.

Other factors may also serve to boost demand. Mortgage rules were also made somewhat stricter earlier this year, and this could also increase demand by driving more people towards rented accommodation. Meanwhile, though prices are not rising quickly enough at present to deliver the returns investors hoped for, they are still on the rise and already look high to many first-time buyers. This could lead more people to decide that renting is their best option.

This approach is an easy one for investors to swallow, as property is already classed as a longer-term investment. It is difficult and expensive both to obtain a property and to part with one, so the long game is far more practical than one of short-term gains. However, it is obviously still desirable for a property to deliver in the short term, and though market trends are encouraging the anticipated future acceleration of values is not guaranteed. Therefore, investors are still left with a market where profitable renting in both the short and long term is of heightened importance.

Many factors must be considered in order to ensure a property may be both reliably tenanted and bring in profitable rents. Location, as ever, is one key thing to think about. So is the quality of the property, both in terms of how this will affect rents and whether it will inflate your maintenance costs. The type of tenant it is likely to attract is another thing to think about. Is there demand from this particular group in the property’s location, and will they be likely to pay their rent on time?

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