Following the vote to leave the EU in June, many were concerned that landlords could be affected adversely thanks to a weakened economy and plummeting incomes.
Top economists had warned that the UK could plunge in to recession and put a halt to high demand in the residential and Private Rented Sector (PRS). Figures released this week, however, have shown that the economy is outperforming all predictions and grew GDP by 0.5% in the third quarter of the year.
The figures were down on the second quarter of the year, which recorded 0.7% growth, but in contrast to many predictions the figures have been seen as hugely encouraging. There are still reasons for concern for the government though as many sectors, including construction, contracted between July and September. In addition, there is concern that the main agents propping up the growth, the financial service sector, could reduce their operations in the UK once Article 50 is triggered to begin the process of removing the UK from the European Union.
However, despite the dire warnings, many landlords have been enjoying strong yields and capital growth and consumer confidence remains high. The property industry has been a success story in its own right over a tough period and many investors and landlords are hailing its resilience.
In support of this, a new survey conducted by Simple Landlords Insurance has found that it is business as usual for the majority of UK landlords. According to the report, four out of five landlords have no intention of changing their plans to invest in buy-to-let properties despite the fears of a slowdown prompted by the Referendum vote.
Only 9% said the Brexit vote meant they would postpone expanding their portfolio, while 3% said they were likely to invest even more, the same proportion who said they planned to sell a property. The survey found the majority of landlords will not change their strategy despite the government announcing plans to cut tax relief on buy-to-let mortgage payments.
By 2020, landlords will no longer be stopped from deducting the cost of their mortgage interest from their rental income when calculating rent, meaning tax is paid on turnover rather than profit. The cuts will be introduced slowly beginning in April next year. 70% of those polled said the reduction of tax relief on buy-to-let mortgage payments would not affect their plans, and 4% said they were planning to invest more as a result of the changes. 12% said the changes meant they planned to wait before adding new properties to their portfolio, while 8% said they would now sell one or more properties.
There were, however, 20% of those polled who said that they expect to increase their rents in the next year, passing on the cost of buy-to-let tax relief to tenants. Only 1% of landlords said they would reduce rent, with the remaining 79% planning to keep rent at the same level in the next 12 months. Worries regarding new government legislation and changes to the tax code are understandable.
As positive economic news continues to drip through and performances across the sector remain strong, many in the PRS, tenants included, are seeing the benefit of as standards increase thanks to letting agents and more professional landlords. As the sector takes a more professional tone with tighter regulation, standards should continue to increase and investment should increase as tenants receive better service.
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