There will be those who seemingly flow with the wind when it comes to their opinion on whether property remains an asset class worth investing in. Various short-term issues or spikes or quick fixes will see them blow to a course which believes now is not the right time to buy property or that now is the very best time to purchase.
Of course, any investor worth their salt, will know that if you are basing property investment on short-term factors then you are probably pushing your money into the wrong sector. It’s those who weigh up all the long-term pros and cons of property and can stay that course who are most likely to secure short-term income and longer-term capital gains.
So, what do those fundamentals tell us? Well, in the UK – and this has been the case for pretty much the last few decades – demand far outweighs supply, and despite various politicians of differing governments trying to tackle the housing shortage, the numbers do not lie.
House prices, as a result, tend to keep inching up; average incomes rise but not by the same level required to keep pace; deposit requirements have grown; mortgage affordability has got stricter; the provision of high LTV mortgages has fallen; homeowners move less; more people use the equity in their homes; the number of single-person households increases; our population continues to grow etc. And that’s without even factoring in what Covid-19 might mean for the market.
I could go on, but what it still tells us is demand exceeds supply and, as a result, the demand for private rental sector property continues to grow. So, on that basis does property remain a good long-term asset class to invest in?
Well, the July 2020 RICS UK Residential Survey might give us more fuel for that particular fire. It revealed a 6% increase in respondents reporting new buy-to-let property coming to market in the past three months – not a seismic change you might think but it was the first time since 2016 that landlord instructions had improved.
And, what happened in 2016, but the introduction of the 3% stamp duty surcharge for landlords to pay when purchasing. Lo and behold, now landlords have access to a stamp duty holiday there appears to have been an immediate reaction in terms of purchase activity.
In other words, landlords have never stopped wanting to purchase or add to portfolios – and indeed they have continued to do so throughout the past four years even with the extra stamp duty cost – but what they are going to do, where possible, is take advantage of any environment in which their upfront costs, namely stamp duty, are reduced?
Why? Because they know that demand exceeds supply, and over a long-term horizon they can not only see rental rises as a result, but ultimately capital increases when they might plan an exit.
The RICS report also suggested that rents may rise by 1% nationally over the next 12 months – that may be a conservative estimate and it will not be the case right across the country but I suspect it will happen in most regions. Our most recent Rental Barometer for English regions showed some slight falls, as a result of the immediate lockdown measures, but on the whole rents had remained remarkably resilient.
Plus of course, landlords will know only too well the types of properties, and the areas, where they can maximise their rental returns – after all, they’ve being doing this over the last half decade, and then some.
So, while these times remain somewhat uncertain, and I’ve no doubt there will be some challenges to overcome in the short-term, the medium and longer-term picture for advisers’ landlord clients remains pretty much as is. Where possible they will add to portfolios, and where incentives are offered, they will not be slow to take them.
Advisers should therefore prepare to deal with the increased demand that this year will bring from these clients and focus on servicing their short-term finance needs in order to fund their longer-term investment ambitions. Property will remain at the forefront of their objectives for many years to come, and, advisers who can maximise the number of landlord clients they deal with, are also likely to reap the benefits over a significant timescale.
Bob Young is chief executive officer at Fleet Mortgages