The continuing turbulent political situation around Brexit and the increasing regulation facing those renting out residential property are impacting on the lettings
industry. However we suggest that despite these considerable pressures, there still are opportunities for savvy investors. Here we consider the main events of 2019 which could influence the rental market and provides an overview of the sales market.

Mortgage Interest Relief

Landlords have previously been able to claim 100% Mortgage Interest Relief for rental properties, but by 31st January 2019 when 2017/18 tax returns are due, the percentage of finance costs deductible from rental income is reduced to 75%, with the remaining 25% of mortgage interest qualifying for 20% tax to be deducted.

By the 2020/21 tax year, 0% will be tax deductive and 100% of the mortgage interest relief would qualify at 20% reduction of tax.

For landlords whose earnings are currently in or not far away from the higher tax bracket, these changes could make them a higher rate tax payer without them earning any additional income – costing potentially hundreds of pounds extra in tax. This may encourage existing landlords to sell their rental property, whilst putting off potential landlords from investing in a buy-to-let property.

From discussions with several investors Kingswood has met recently, our experience is that these changes are not actually detering investors from purchasing a buy-to-let property, providing the correct financial advice is sought prior to purchase. By having a well-considered investment strategy in place before the purchase of a rental property, an investor could still achieve competitive returns on their investment despite the changes to mortgage interest relief.

The Brexit Effect

Whilst politicians wrangle over the UK’s departure from the EU, and property analysts debate the impact of Brexit uncertainty on the market, we have found that in the midst of all the challenges there are opportunities awaiting investors, particularly in the Midlands and the North of England.

There is still a shortage of rental properties on the market to meet the current tenant demand in the East Midlands and this situation will become more acute as landlords look to sell rather than face increasing financial pressures. Instead of waiting for house prices to rise before selling, there is evidence that properties are being put on the market with landlords taking the financial hit. Meanwhile, other pressures, such as reduced tax benefits, are deterring others from buying to let.

This may seem grim, but the situation presents investors with the opportunity to take advantage of discounted investment opportunities. In the East Midlands region, where the demand for private-rented accommodation outstrips supply, rents continue to rise steadily. Therefore, purchasing a property at a discounted rate could provide a higher return.

Although we can’t be certain on what will happen post-Brexit, at Kingswood we believe that there could potentially be some investment opportunities to take advantage of this year, so be ready to act if a good opportunity presents itself.

Ban on Tenants’ Fees

The much publicised Tenant Fees Ban will come into force on the 1st of June 2019. From this date the Government expects landlords to cover to full cost of setting up a new tenancy which will ultimately result in rising cost for the landlord.

ARLA Propertymark (the Association of Residential Letting Agents) campaigned against this bill when the government initially announced it within the Autumn Statement in 2016, claiming it would have a counterproductive effect on the rental market and would result in higher rents. It is highly likely that landlords will attempt to recover extra costs by increasing rents, which will have a negative impact on tenants who wish to rent longer term as they will ultimately end up paying more.

At Kingswood, we predict that it’s these long-term tenants who will see the biggest losses from this change due to increased rent, ironically the same group of people the Government claim they are trying to help. Two positives for landlords in the East Midlands are that tenants are renting for longer and rents are increasing.

The Sales Market

The average UK house price is forecasted to increase by 2% in 2019 (source: Zoopla)

The biggest factor which could change this prediction is the Brexit outcome, which might further raise economic uncertainty and deter people from moving house. However, most experts predict that the housing market will either stay the same or slightly increase. Some vendors may ‘panic’ sell which could affect the market and bring investment opportunities. When the vote was cast in 2016 to leave the EU, the housing market didn’t either fall or increase as a result, and at Kingswood we don’t expect any drastic changes post Brexit either.

Buy to let mortgage rates are attractive at the moment and some lenders are now offering up to 85% buy to let finance. Within the first few weeks of 2019, Kingswood Residential had several meetings with potential investors who can see the investment potential that Nottinghamshire property market has to offer, with tenant demand outweighing property supply across many areas of the region.

So, as we look forward to the next 12 months, despite uncertainty, a challenging market and a sector that continues to be ‘squeezed’ by Government regulations, we believe there will still be opportunities for the savvy investor, especially those taking a long-term view on their property investments.

Christopher Williams MARLA
Kingswood Residential Investment Management