Buy-to-let investing: is market enthusiasm booming?
With all the negative commentary in the media about investing in residential property over the past few months, you’d be forgiven for thinking that as an investment option it was a write-off. Mark Prentice from Hampden and Co discusses the reality of the buy-to-let market.
Negative attention is partly due to the changes in tax legislation. However, the reality is that buy-to-let remains an area of interest amongst clients of mine who are both serious investors and committed landlords, and they are extremely positive about the market.
My role at Hampden & Co involves leading a team of Private Bankers and supporting them in looking after the interests of a range of clients across Scotland, frequently working as part of team involving accountants, lawyers and wealth managers. As a result, I come into contact with a lot of people who are looking to grow their wealth, and a good proportion of these have at least one buy-to-let property as part of their portfolio. The message we’re getting from the overwhelming majority of them is that their enthusiasm for including property investment as part of their portfolios remains strong.
In fact, a survey of attendees at a recent seminar we held at Hampden & Co’s offices showed that 94% of participants remained confident about investing in property going forward, while only 22% were considering reducing their property portfolio.
Built to last
Although the term was coined in 1995, the buy-to-let model has been around for nearly 30 years – the majority of my professional career - since the deregulation of the industry under the 1988 Housing Act. Although there have been some not-insignificant bumps in the road along the way, in that time buy-to-let has demonstrated staying power as a generally successful investment for both professional and amateur landlords.
Even after the 2008 crisis, buy-to-let was quick to bounce back and is still going strong. From talking with clients there are two main reasons for this firstly, many of them have had a generally positive experience over time, and secondly, some appreciate having a tangible asset they can see and touch as part of a broader portfolio of investments.
Change can be positive
Recent government intervention means the market is now more heavily regulated than ever, with a particular focus on serial landlords – those with four or more properties on their books. The consequence of this, combined with media negativity, is that the number of landlords buying properties has fallen in the last 12 months. However, on closer inspection it’s actually the more professional landlords with bigger holdings who are choosing to remain in the market, while ‘part-time’ landlords are more likely to back out.
Supply and demand
Since 2011, according to PropertyWire, there has been a decrease of 11.6% in the number of properties available for rent in the UK, with a decrease of 34.7% over the same period in Scotland. As with most goods and services, scarcity drives demand and therefore price.
At the same time, cultural changes are affecting the market – young people seem less determined – or are less able because of increasing prices - to buy property than previous generations, while, perhaps more surprisingly, we are also seeing a significant rise in mature renters. Between fewer young buyers and the UK’s ageing population, demand certainly appears to look robust , keeping the market buoyant.
And what about the return on your investment? Data from the Office for National Statistics highlights that rents have risen 1.9% since this time last year, and a sharp 14.8% since 2011. In addition Land Registry data shows that UK house prices have also increased by 28% in the decade since 2006. So, I suspect that this is why clients are maintaining an enthusiastic interest in the potential returns that they believe property investment will continue to offer.
We have collaborated on a series of videos with an accountant, a property expert and a lawyer - watch our buy-to-let videos and find out more.
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About the author
Mark Prentice joined Hampden and Co in January 2017 to head up the Banking team in Scotland. Mark leads a team of Private Bankers looking after the interest of a range of clients across Scotland.
Mark is an experienced banker having been with Bank of Scotland, Clydesdale Bank, ABN AMRO and Lloyds TSB Scotland where he was Head of Corporate Banking. He lives in the New Town in Edinburgh and when not in work can be found perfecting his round of golf.
About Hampden & Co
Hampden & Co is an independent private bank, established by a team of experienced bankers who understand that many successful professionals value a very personal banking service. The bank offers a discreet, high-quality service based on developing a detailed understanding of their clients through close personal relationships, and frequently works alongside clients’ broader advisor teams.