Why Buy-to-Let will still be a Good Investment in 2023

November 30, 2022

Assumptions and predictions - in the present economic situation, where uncertainty reigns, it is rather difficult to forecast the future. However, as far as the property market is concerned, and in particular the rental market, it is felt that 2023 will still be a good year to invest in Buy-to-Let property. Many of the professionals involved in real estate, and especially in those areas where the rental market is high, like the estate agents in Witney, anticipate that it will be a good year.

Why should this be so, when inflation is spiking, leading to a rise in the cost of living as well? Given below are a few pointers.

Opportunity: 

When there is uncertainty in the market, many property owners sit still and do nothing; some wait for things to get better while others get panicky, give in and look at the quickest way to sell. It is an opportune time for an investor to look at purchasing property. However, before one rushes into the buyer mode, a great deal of research needs to be done - on the economic situation and the plan of action that will work best. In the past recessions, there were many investors and developers who made their fortunes by investing in the right property at the right time.

Prices: 

It is likely that, as affordability dwindles, house prices may also decline. Interest rates rise and mortgage approval is sometimes difficult to obtain. The taxations and regulations on Buy-to-Lets are also intimidating and are forcing some landlords to think of selling. However, this is also a time of opportunity for prospective investors to avail of lower prices. With the hopeful rise of the economy in the next few years, the investment could provide a windfall in terms of ROI (return on investment).

Location: 

The rental market, in general, is expected to increase due to unaffordability to purchase houses. Demand for rentals in certain areas has shot up, especially for students near the major University cities. This will continue, so the location is important for prospective Buy-to-Let investors. As one authority stated, “Students make up a sizeable portion of this market because they usually need to look at and book accommodation a full twelve months before their next academic year begins.” 

EPCs: 

The energy efficiency of a property needs to meet the rules of EPC ratings, with Energy Performance Certificates. Some landlords feel the cost of upgrading the property is not affordable or feasible. After ascertaining the quality of the building and the location, it could be an opportune moment for a Buy-to-Let investor to step in and offer a reduced price. New builds will already have the necessary EPC so looking at a new property for Buy-to-Let investment will remove the need for this upgrade.

Private landowners:

For those who hold properties in their own names, the capital gains tax increases significantly when they decide to sell. For a farsighted investor, taking care of the Buy-to-Let regulations and perhaps allowing an owner to sell the property over time so that he/she can make use of the CGT annual allowance would be an incentive. Over time, the tenants and property would become the buyer’s, including the benefit of equity. This method will also need much study, research and a working strategy to be profitable.

Small scale development: 

There are many unused boarded-up shops and commercial buildings which could be developed profitably. The government’s legislation, permitting development right (PDR) and allowing shops to be converted to residences, has made it easier for investors to look into this aspect. Such development would be a source of supply in the current dearth of houses. Some eminent developers are not very interested in small development conversions but, for a prospective investor, where demand for residential property far exceeds the supply, it could turn into a hugely profitable venture.

Mortgages: 

The interest rates have risen but there is no limit to the amount of buy-to-let mortgages a person can have. A Buy-to-Let mortgage is usually interest repayment only, although the alternative to pay instalments of capital and interest is also offered. While rates are high just now, they are subject to fluctuation and, looking at the long-term, they are expected to settle down. In the case of remortgaging, this may prove profitable.

Conclusion: 

With such a huge under-supply of houses, holding property is an asset that is bound to increase in value. With the current cost of living, some people are unable to buy properties which is increasing the rental demand. The unaffordability is also leading to a slowing down in price hikes. With time, hopefully the economy should normalise which will only increase the equity value of properties. The “bricks and mortar” investment has remained buoyant over time despite pressures. Though predictions should not be taken irretrievably, this one regarding investment in the Buy-to-Let market seems optimistic. 

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