Over the last five
years, life has become a little trickier for Bridgend landlords, with changes
to their taxation status, mortgage interest relief and an additional 3% Land
Transaction Tax for a buy-to-let property, and has made lots of Bridgend landlords
ask themselves:
‘Is buy-to-let in Bridgend still
worth the risk?’
Regarding taxation,
in 2016, the Government added a 3% supplement in Land Transaction Tax on all
buy-to-let properties. Then, in 2017, the Government started to reduce
mortgage interest by stopping landlords from deducting the interest they paid
on their mortgage before paying tax on the rental profits and replacing it with
a flat rate tax credit based on 20% of the interest they spent on their
mortgage.
There would be no
effect if a Bridgend landlord were a basic rate 20% taxpayer. Yet Bridgend
landlords who were higher-rate (40%) or top-rate taxpayers (45%) saw an effect
as their tax relief was cut in half.
So, is buy-to-let in Bridgend
still an advisable investment?
The response to
this question is much more significant than the issue of taxation.
To a large degree, as
with all investments, it depends on why you are investing and what your final objective
is. Let me expand.
The rewards of Bridgend buy-to-let.
You can earn money
two ways with buy-to-let.
The first is the
rental income from the property.
The average rent achieved
in Bridgend is £763 pcm, a rise of 9.2% in the last
12 months.
This rent is expressed as a yield and
is described as a percentage figure that’s
calculated using the annual rental income and dividing it by the value of the buy-to-let
property.
Landlords and buy-to-let investors use rental yield to judge and measure
the value of their rental investments and portfolios. E.g. rent is £1,000 per
calendar month (pcm), which means the annual rent is 12 x £1,000 = £12,000. If
the property is worth £180,000, the rental yield is £12,000 divided by
£180,000, which, when expressed as a yield percentage, is 6.67%.
The average yield in Bridgend
is 4.0%.
Some areas in Bridgend
can easily achieve a 5.5% to 7% yield, sometimes even more, depending on your
choice of property and type of tenancy you wish to have.
If yield is your
number one focus, the highest average yield in the UK can be found in Bradford
City Centre, where it is 12%, Hyson Green and Radford in Nottingham at 9.6% and
Pontypridd at 8.7%, while other areas in the UK can be as low as 2.2%.
So indeed, is the
best strategy to go for high-yielding properties?
The problem with pursuing high-yielding Bridgend buy-to-let properties
is that you usually must compromise on the property’s capital growth to attain
that high yield.
The second way to
earn money with buy-to-let is capital growth as your Bridgend property
increases in value.
CF31 property values are
24% higher than 3 years ago.
A reasonable return
in anyone’s books.
Of course, this all
depends on the rent coming in, yet you can buy landlord insurance to cover
against loss of rental income, tenant damage and legal costs.
Interestingly, using Government data and
Industry data, Denton House Research found that in the first lockdown landlords
who managed their rental properties themselves were 272.5% more likely to be in
arrears of 2 months or more (compared to those who utilised the services of a
letting agent to manage their property).
The drawbacks of Bridgend buy-to-let.
Your tax bill is
higher today than a few years ago, but isn’t everyone’s?
If Bridgend
property prices fall, the capital you invested will reduce, yet if it sat in the
bank, it would decline in value anyway.
Being a landlord is
a big responsibility, with over 170 pieces of legislation and orders to comply
with. That’s where a suitable letting agent can help you with your rental
property to ensure you remain compliant.
I recommend Bridgend
landlords consider all options to maximise their rental income whilst reducing
their outgoings concerning their rental property.
Rents are rising in Bridgend (as mentioned above), and many Bridgend
landlords appreciate the demand-led increases in their rent. And let me ask
you, why shouldn’t they, as they have been exposed to many legislative and
taxation changes over the last five years?
Ok, last point and the elephant in the room.
Will there be a house price crash, and should Bridgend landlords wait for it?
A house price crash conjures up a big event that makes house
prices go down, and it certainly happened like that in 1988 with the removal of
dual-MIRAS tax relief on mortgages and the Credit Crunch in 2008. Yet this
time, it’s different.
As there is more normality and balance in the Bridgend
property market at the moment (compared to 2021/early 2022), the price that is
being paid today on most houses in Bridgend is not as extreme or as extravagant
as what was being paid in 2021/early2022 (when people were outbidding each
other).
Therefore, if you were to look at the house price indexes
going into the spring and summer of 2023, then there will be a reduction. The
doom-mongers and newspaper editors will call that a house price crash, yet I
see it as the market easing back to normality.
A massive driver behind landlords and home buyers
‘waiting for a house price crash’ is that they fear they have ‘missed the boat’
when it comes to buying/investing.
There is always newspaper (and now social media) attention
when house prices explode. This means people quickly feel pressure to enter the
‘property market’, as everyone is making money, yet they aren’t.
The problem is that during the previous boom phases (the
late 1980s and early/mid-2000s), house prices increased quicker than some people
could save money for their deposit (for a house purchase). They saw their
friends and acquaintances snapping up buy-to-let deals and they were missing
out on the spoils of house price growth. As a result, many of these excluded house
buyers judged that a house price correction was foreseeable, inevitable, and
sometimes even needed. Not with any rational economic argument, but classic
FOMO (Fear of Missing Out).
Yet a ‘house price crash’ isn’t the silver bullet that many think it will be.
‘House price crashes’ virtually never drop house prices to reasonable
levels, and in fact, they have a lot of additional effects that make house buying
even harder.
Investing in buy-to-let is a long-term investment. Remember
what I said at the start. It would help if you decided why you’re getting into buy-to-let
investment and when you will get out (and what you want to get out of it).
Buy-to-let has advantages and disadvantages, but it is something tangible and
something that investors can understand.
The UK needs to build more houses, so the demand for rental properties will only continue to grow.
The heady days of the early 2000s, when anybody could make
money from any property, though, have gone. With increased legislation and
taxation, you need the advice of a great agent to guide you on what to buy (and
not to buy) for an excellent yield, incredible capital growth or a balance of
the two. That agent should be able to find you a great tenant who will pay the
rent on time and look after the property to ensure that when they leave, your
investment is returned to you in the best condition possible.
If you would like to pick my brain, whether you are
considering becoming a landlord in Bridgend, an existing landlord (irrespective
of which agent you use) or even a self-managed landlord, do not hesitate to
pick up the phone to me.
I will tell you what you need to hear, not necessarily what
you want to hear.
