We have been talking about the end of the buy-to-let era for some time, but the recent move by the Bank of England to raise interest rates really does signal its death knell, both as a viable sector for investors and as a model that makes a useful contribution to our national housing supply.
Even the most committed landlords will now be wondering how they will be able to fund their investments, as buy-to-let mortgage costs soar on top of recent tax rises aimed at landlords and the cost-of-living crisis constrains potential rent rises.
Other options do exist for keen investors and can work much better in the context of the current market conditions and policy environment. For example, investing in a portfolio of loans to open market and social housing developers means investors can typically receive 6% to 9% gross yields as monthly loan interest, which can be held in an ISA rather than being underwater with interest rate costs on a buy-to-let mortgage versus the rental income.
Another example is investment in a portfolio of supported living homes leased to charities and able to make an impact on the shortage of homes for the less fortunate.
These investments also have a significant social impact, allowing more homes to be built for sale and rent, mostly at affordable price points. This is paramount in the face of a deepening national housing crisis.
We must build more homes. It is the only way to tackle affordability and undersupply in the rental and for-sale markets. Finding new ways for private investors to inject capital into the market is vital at a time when substantial cuts to public spending are more and more likely.
But we can’t ignore the other crucial aspect of this, which is supply-side reform. That means unrooting the planning system to promote more development. However, once again, whether this can be delivered by government is in doubt , as planning reforms were barely mentioned in the recent autumn statement.
The urgency to reform planning cannot be underestimated going forward and the government must act soon to offer a lifeline to a sector already under severe pressure.
Stuart Law, CEO, Assetz Group