The buy-to-let market in Huddersfield is about to enter a challenging 12 to 24 months. Yet by looking back at the last recession and what is happening now, there are vital lessons all Huddersfield landlords can learn to protect themselves, and in fact create opportunities for themselves both in the short term and ultimately the longer term. For the purposes of this article, I would like to split these and look at the challenges and then the opportunities.
So, let’s consider the
challenges ahead for Huddersfield landlords…
Overall, the impending rise in unemployment stands to encumber
tenants’ ability to pay their rent, the rents being achieved and the possible Capital
Gains Tax changes might mean an increase in tax paid by Huddersfield landlords
when they come to sell their Huddersfield buy-to-let properties.
Let’s look at these three points in greater detail. Firstly looking at
your Huddersfield tenants ability to pay the rent; the Furlough Scheme
certainly did help soften the blow, helping out 8.9 million people
in May (out of 30.5 million who were eligible for it) and at the last count in
early August, this thankfully had reduced to 5.3 million people (meaning
15.86% of workers are still on furlough). However, it cannot be
denied the economic fallout from Coronavirus has already placed some tenants
under economic strain. As the Furlough Scheme finishes at the end of October, commentators
are suggesting the number of tenants either incapable of paying their rent, or requesting
a reduction in their rent, is predicted to increase as we go into autumn and
early winter.
The ultimate sanction against non-payment of rent is legal
proceedings although guidance from the Government has recommended that
landlords and tenants should work together and deplete all possible options
before starting eviction proceedings. Yet many Huddersfield landlords are
feeling the pressure as many mortgage payment holidays will be coming to a close
at the end of September. Some Huddersfield landlords can indisputably see that their
tenants are finding it tough and they are willing to work with them, but they
can only make allowances go so far. Landlords
aren’t running a charity and I would stress to any tenant that finds themselves
being made unemployed in the months to come to apply for Universal Credit as
soon as possible, which should help with their rental payments. With regard to
the eviction process, the Government have changed the rules a number of times
in the last few months, so if you want an update, don’t hesitate to contact me,
whether you are client or not – I am just happy to help.
Secondly, it’s interesting in central London, there has been
a glut of Airbnb properties coming onto the market because of a lack of
tourists to rent them on a short-term let. A greater supply of rental
properties has meant a downward pressure on rents in London of 2.1%. I don’t
think this is so much of an issue in Huddersfield as…
Huddersfield rents are 3.49% higher year on year
Thirdly, there is talk that the Chancellor, Rishi Sunak, is
looking at changing the Capital Gains Taxation rules. As property is the biggest asset that most
people own, this is also reason for concern for Huddersfield buy-to-let landlords.
Currently, Capital Gains Tax on sales of buy-to-let property is levied at 18% for
basic income tax rate payers and 28% for higher rate income taxpayers. There
is talk the capital gains made on the landlord selling their buy-to-let
property could be taxed at the landlord’s income tax rate.
Yet before you all start selling your Huddersfield
portfolios before November’s budget, any changes in Capital Gains Tax would be
immediate. That means to ensure you didn’t come foul of the potential rise in
the tax, you would have to have to sell your Huddersfield portfolio at a ‘fire
sale price’ in days and have a solicitor that could do the conveyancing in 3
weeks (whilst it is taking 19 weeks on average for buyers to sort their legal
work out) and the buyer be a cash buyer because banks are taking months, not
weeks to sort finance. This is just something we are going to have to take on
the chin!
Let us now consider the
opportunities ahead for you Huddersfield landlords…
As the country officially entered its first recession since
2009, uncertainty in any markets (be it property or stocks and shares, etc.) causes
investors to vacillate over whether or not to take the jump. Nevertheless,
there are numerous indicators that appear to show this is, indeed, a good time
to either become a buy-to-let Huddersfield landlord or expand one’s property
empire and buy more property ... let me explain.
Firstly, assets (such as gold and stocks and shares) are
great, yet if they aren’t producing income and cash – that doesn’t pay for your
day-to-day living. Gold doesn’t create any income and many FTSE companies won’t
be paying dividends for a while. Government Bonds are currently earning their
investors 0.2% (no - that isn’t a typo) and the best savings accounts are
achieving 1.1% with a 120-day notice period, so where are you going to invest
your hard-earned money?
The average Huddersfield buy-to-let property
will earn a monthly return of 6.96%
Of course, deciding on the right Huddersfield property is crucial
to get a good rental income and return. I have seen so many Huddersfield
first-time landlords buy with their heart and not their head. Buying your own
home is more heart than head but buy-to-let is a completely different kettle of
fish. There is the inverse relationship between income (rent) and capital
growth (how much it will go up in value in the future) i.e. as one goes up,
the other tends to go down – so getting the balance for your needs is vital. Again,
I can advise on that for you.
Secondly, with the stamp duty holiday and the pent-up demand
for people wanting to move home in Huddersfield (discussed many times recently
in this blog), the Huddersfield property market is certainly very buoyant at
the moment, yet even the most optimistic agents say it cannot last. Whether the
market goes pop or has a slow and steady puncture, the market will cool in
2021. The recession will mean some people are less able to afford a mortgage.
This means that if Huddersfield property values do ease off in 2021, you may be
able to get a great buy-to-let deal if you are planning on becoming a Huddersfield
landlord or expand your property empire as an existing landlord.
Also, if the property market does find property prices
realign to a new normal in 2021/2, house sellers may find it difficult to get a
good price on their Huddersfield home during a recession, meaning many house sellers
may be more agreeable to sell their property at a lower price.
Third, if people aren’t buying, they still need a roof over
their head and the council aren’t building any council houses, meaning the
private sector will need to take up the slack.
Rightmove reported tenant demand grew by a third in
May 2020 when compared to the same month in 2019
Therefore, if you are still unsure about becoming a Huddersfield
landlord, knowing that more Huddersfield people want to rent should help you
feel more comfortable as the risk of ‘running out’ of renters interested in
your Huddersfield property is minimal. Yet again, please don’t go buying any
old Huddersfield property, as it’s fundamental that you make a good investment
from the start in order to see a good return on your investment.
If Huddersfield property values do fall in 2021 (as in
2009),
tenant demand for Huddersfield property will only go
up
Fourth, the Government reduced stamp duty with the sole aim
to benefit the property market. The purchase needs to complete by the end of
March 2021, which means you will need to have bought the property by November
at the latest (as obtaining finance and legal work is taking at least 19 weeks).
A word to the wise though, that whilst the saving in Stamp Duty delivers some
up-front saving for those buying a buy a let property, don’t get carried away
and use that saving in the purchase price you pay. Certain sectors of the Huddersfield
property market are seeing some very inflated prices, meaning if you go into
battle for a show home quality semi-detached house within a stone’s throw of
the best school, you will be fighting against buyers who want it for themselves
and are prepared to pay top dollar for it, meaning some landlords could end up
paying more for a property. My advice, if you want to save on the Stamp Duty,
there are bargains to be had – you just have to know what you are looking for
(again, as mentioned in point 1 – I am here to help on that whether you are a
client of mine or not). The other option would be ‘just hold back’ until after
31 March 2021, when Huddersfield property prices could ease.
Fifth, reports that the mortgage lenders are imposing
stricter conditions are true, yet even during Covid, many lenders are seeing
buy-to-let landlords as a safer option to lend their money to. In June alone,
the number of buy-to-let mortgage products rose by 19.2% (to just over 1,700)
meaning if you have a decent deposit of 30% upwards, you are likely to find
something that fits your needs (at the time of writing this article, the
Birmingham Midshires had a buy-to-let 5-year fixed rate mortgage at 1.94% and
Santander at 2.04% ... this is cheap money in anyone’s language). Mortgage rates
are ever becoming more economical, which is a great motivation for anyone
wanting to get a foot on the Huddersfield buy-to-let property ladder.
Finally, words cannot portray the feeling of being able to
see and touch one’s investment like the sensation of bricks and mortar.
Buy-to-let investment has to be seen as a long-term investment yet, for many, that
is a source of financial security. Of course property values might go south
next year (but they might not!), whereas there may be intervals where it’s more
problematic to sell because property values will be too low, as is normally the
situation throughout a recession, there will also be times where Huddersfield landlords
will make a nice profit when selling their buy-to-let homes. Like all things in
life - it’s all about the timing.
Huddersfield property values are 181% higher than 20
years ago
If you’re looking to invest but are not interested in stocks
and shares (and you understand that your money may be tied up for a while) then
the Huddersfield buy-to-let market could be for you.
To conclude, buying the right Huddersfield property at the
right price to start with, presenting the property in the best way to get the
best tenant, fully checking out and referencing the tenant to ensure they have
a good track record of being a good tenant that doesn’t trash the property and
has always paid the rent on time in the past and then finally, managing the
property to ensure your property complies with the 200+ legislations and
regulations of rental property, so you can sleep well at night … all to ensure
the property is returned at the end of the tenancy to you in good order is what
nirvana looks like.
Of course, buy-to-let does come with some risks and
challenges, but it’s all about mitigating those risks. Also, there is no
denying that buy-to-let also comes with a lot of opportunities as well. If you
are a landlord with another agent or even a Huddersfield landlord that manages
the property themselves, feel free to drop me a message, email or pick up the
phone and let’s chat about your personal goals when it comes to buy-to-let …
because what have you got to lose? Surely 15/20 minutes of your time to get
great insight and inside track is worth it?
Remember, the choice is yours!
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