The UK property market is facing significant headwinds. In July, the average UK house asking price registered the steepest monthly drop for 20 years and landlords are selling up in droves in response to rising oblications and taxes. Buy-t0-let certainly does not seem to be offering the same returns that it once did, but that does not mean that there are not opportunities available such as with REITS and P2P property investment platforms.
What has happened to the buy-to-let market?
Increased mortgage rates
Mortgage rates available to buy-to-let investors have fallen from their peak following Liz Truss’ disaster budget, but with rates hovering around 4%, the opportunity for profit is nowhere near wh.at it has been for much of the last decade with mortgage rates under half of that value.
Slow property price growth
House price growth varies significantly by region and property value, but we are not seeing the 7-10% yearly growth that some investors saw in previous years. 2023 saw negative growth in many areas and house price growth in 2024 remained anaemic, but the situation does seem to have improived slightly for home owners so far this year.
Increased regulations
Regulations are needed in the private rental sector to make sure that people’s homes meet the minimum requirements of being safe, dry, and secure. However, some argue that the rapid increase in regulations facing landlords in recent years are overly onerous makes investing in property a far less attractive prospect.
Some regulations that have been proposed or implemented over the last few years include changes to the Energy Performance Certificate (EPC), the Decent Homes Standard, and the Renters Rights Bill.
Tax rule changes
Changes to the tax rules mean that many of the costs associated with owning a property can no longer be offset against its income. A change to Section 14 intitiated by Goerge Osborne in 2015 but only coming into force in 2023/24 means that higher rate taxpayers can no longer offset their mortgage payments against rental income, sinificantly increasing their tax burden. There is also an additional 3% stamp duty added when buying a second property or buy-to-let through a company which affects the majority of larger landlords in the UK.
What are the alternatives to buy-to-let?
REITS
Real Estate Investment Trusts have had a difficult few years. Higher interest rates from 2022 significantly impacted their peformance and the scandal-ridden Home REIT put a negative focus on the wider REIT market. However, as market conditions imrpove and regime canges come into force, some are now predicting their appeal to grow. Unlike buy-to-let property, you can protect your REIT investments from tax by investing in them through a stocks and shares ISA.
P2P platforms
Whereas REITS provide an avenue for investors to invest across a number of properties owned or financed by the REIT, P2P platforms offer a more direct way to earn income from specific properties. Some platforms like Kuflink focus on property bridge lending and property development lending, whilst others like Housemartin add a social impact by focusing on supported living properties with support from local government, housing associations, and charities. Both platforms currently offer yields north of 7%, which significantly outstrips those of most UK REITS, and both offer the opportunity to invest via Innovative Finance ISAs to protect income from tax.
This is information – not financial advice or recommendation. Do your own research and seek independent advice when required. Investing carries risks.
