Buy-to-Let Trends for 2016

While London has been the focus for much buy-to-let activity over the past five years, 2016 is likely to see more investors look to the regions. Lower property prices, coupled with great yields make regional towns and cities increasingly attractive for prospective investors.

The buy-to-let market in the UK has grown rapidly over the past few years. The Council of Mortgage Lenders puts the value of buy-to-let properties in Britain at over £1,000 billion, accounting for 9% of all property transactions, and 16% of mortgages.

With average annual house prices growing by 5-9% in recent years, investors will have seen great returns, especially in London, where prices are up 41% on 2007 levels. For expat investors coming into the market for the first time, or those looking to expand a portfolio, areas outside London may be more affordable.

UK house prices expected to rise by 4-6%

Property prices in the South East and East of England have risen by 13% and 8% since 2007 and as the price differential between London and the rest of the UK grows, commuter towns outside London, and regional towns and cities, are likely to see higher levels of demand and good medium term price growth.

David Plumtree, Connells Group Estate Agency Chief Executive, said: “Connells Group is positive about the outlook for the UK housing market in 2016 and we forecast further rises in house prices of between 4 and 6 percent.   

“We do not anticipate the shortage of new instructions to the market to change in the foreseeable future.  Therefore, we expect market conditions to continue as per 2015 with a fast paced property market where buyer demand is strong and where steady home value growth will continue.”

Regulations on the levels of borrowing for potential home buyers has cooled the market, making house price growth more dependent on growth in earnings, and thus more dependent on economic growth.

David Plumtree added: “We expect house price growth to outstrip wage inflation which will, inevitably, put a further strain on affordability, and which may start to constrain house price growth towards the latter stages of 2016.”

Increased demand for rental accommodation

Demand for rental accommodation is expected to grow due to an increasing population and few signs of a large increase in house building.

The UK population is expected to rise by 10 million in the next 25 years, growing from 64.6 million to 74.3 million by 2039 according to figures from the Office for National Statistics (ONS). Over 4.4 million of this rise will happen in the next decade, putting more pressure on housing stock.

Research by Savills show rents in London have increased by 33.3% in the past 10 years, compared with 20.9% for the South East, and 17.4% for England (excluding London). Savills predicts rental values in prime commuter zones will increase by 15.9% over the next five years, compared with 17.1% for prime London.

The Royal Institute of Chartered Surveyors (RICS) expects rental costs to outpace housing costs in the next five years. RICS predicts the price of houses will rise by 4.7% a year, while the cost of renting will rise by 5% over the next five years.

East Anglia is expected to be a key area for rental rises, with RICS expecting rents to increase there by 8% in 2016. Rents in the South East and West Midlands are expected to grow by 7%, and the North West, Wales, Yorkshire and Humberside by 6%. The North East of England is expected to see the lowest growth at 3%.

Demand to stay strong despite Stamp Duty changes

From April 2016 Stamp Duty Land Tax (SDLT) will increase by 3% on buy-to-let properties and second homes in England and Wales. While this may have an effect on some buyers having funds available for a deposit, it is not expected to have much impact on those considering buy-to-let as a long term investment.

David Plumtree said: “As regards the buy-to-let market and with changes to the Stamp Duty Land Tax coming into effect from April, we expect high demand from investors looking to complete on purchases in the first few months of the year before these changes come into effect. 

“This has the potential to boost house prices in the short term but we would expect this to level out post quarter one of 2016, rather than cause any downturn in the market, as general buyer demand will continue to stay strong.”

Skipton International offers a range of expat mortgages for buy to let investment properties in the UK.