It looks set to be another ‘interesting’ year in the property market.
The sea change in the political environment is matched only by the imminent UK property tax changes, which will likely come as a shock to many of the 2m landlords who rent 5m properties.
I do tend to think auction people are more “in the know” with their fingers more firmly on the beating pulse of the property market. This is my opinion and I’m entitled to it – that’s the key message I’ve learned from US president Donald Trump.
Year ahead predictions are always fraught with such issues about reliability of “rightness”, so instead I have hauled out my trusted Divination Brick that should enable me to see into the future and all the hot new trends.
These are the key eight to watch for:
Trend 1: Portfolios will sharpen. Larger landlords have already looked ahead at the shifting market and decided to slim and trim their holdings. As the market gets increasingly competitive, and with the threat of more corporate build-to-let companies staking their claim, it’s all about quality and service. To stay in the game, you’ve got to be nimble. Margins may be under threat, but quality and agility to adapt will play a key role for the successful investors of the future. Newbies take note.
Trend 2: More skin in the game. As Section 24 of the Finance Act 2015 starts to take effect, increasing numbers of investors will start to use up cash reserves or joint venture with fellow developers rather than opting for expensive finance that can no longer be fully expensed for tax purposes. This will see an increase of loans with a lower LTV and may well see a softening of prices in the room.
Trend 3: Income will become even more king. Income has always been king, maybe not as kingly as cash, but the importance of making money on an everyday level from a property investment will prove ever more critical as margins get progressively reduced. Recent local authority excitement for ever more licensing of properties is making investors look carefully at the numbers, along with the increased regulatory changes councils are demanding. Income yields will matter even more than before – despite interest rate levels likely remaining low for the rest of the year.
Trend 4: Death of the personal purchaser. Buying a property as an individual makes little sense if you need finance and intend to hold for the long term. The impending mortgage interest relief restrictions will not apply to companies, but this valid and valuable expense can still be claimed within a corporate ownership structure, meaning more people are choosing to buy like this. The sucker is the lack of CGT allowance – and the fact you’ll be paying corporation tax.
Trend 5: It’s the bare necessities now. The withdrawal of the 10% wear and tear allowance didn’t get much coverage – but this tax break had a major impact on all investors who rented furnished properties, especially affected those who operate in the HMO sector. Tenants will increasingly be expected to provide their own furniture.
Trend 6: Properties will be held for longer. The “penalty” 3% extra stamp duty that has to be paid for additional properties adds massive costs to the purchase price – and in many cases can run to tens of thousands for the typical property purchase. To recoup these costs investors will likely hold for longer to make their money back.
Trend 7: Renovation projects will lose their shine. The extra stamp duty costs and no reduction in CGT for residential investment property will dent the margins for “flippers”, affecting cash flow and the bank balance. Expect prices to likely soften for DIY projects, as the expenses get too expensive to make the sums stack.
Trend 8: Commercial will become shinier. The lower rates of tax for CGT and stamp duty will make commercial property look like an interesting alternative to increasing numbers of investors. The canny ones will also be seeking out future residential angles to leverage the attractive VAT incentives available.
So that’s my forecast. You may not agree, but as I say, we’re in the era of Trump now, so you know what you can do with your opinion!
Samantha Collett is a property entrepreneur and author
