With the introduction of new tax reforms dampening sentiment for the outdated product, should more investors start to focus on the build-to-rent market?
Summary:
- Activity in the UK’s buy-to-let market has fallen by 13.3% in the last year
- Historically Britain’s preeminent property investment, significant government tax changes in recent years is curbing interest in the increasingly outdated rental product
- Both tenants and the government want to see more investment in the build-to-rent market – a sector estimated to be worth £50 billion by 2020
Is UK buy-to-let finally reaching the end of its product life cycle?
While tenants and the government have recognised its shortcomings for some time, investors have taken time to identify the faults and limitations of a rental product that can no longer accommodate the needs of a modern rental market.
But there are now signs that investor sentiment is beginning to wane. New data published by Connells Survey and Valuation has found that, in the last year, buy-to-let activity has fallen by 13.3%.
It comes at a time when the government hopes to curb investment into the buy-to-let sector. Over the last two years, landlords have been faced with reforms to mortgage tax relief and an increase in stamp duty rates on investment and second homes.
Yet Britain’s private rented sector is currently at record size. Demand for rented accommodation has increased by 17,500 per month over the past decade, and almost one in four UK households will be renting by 2025.
While many tenants still harbour hopes of getting onto the property ladder, many young Britons, Generation Y, rent because its syncs best with their lifestyles.
Buy-to-let was built for an older generation that still saw ownership as the key symbol of success. So while compromise on quality, location and service was necessary, they are criteria that are non-negotiable for today’s tenants.
Purpose-built rental homes, located close to key work and business hubs, managed by professional residence teams and constructed to the highest standards of design and quality, are arguably the future of UK property investment, the natural evolution of buy-to-let.
Knight Frank estimates that the build-to-rent sector will be worth £50 billion by 2020.