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The Compelling Fundamentals of Buy to Let

For most of 2018, reports about the prime central London (PCL) property market have been dominated by two factors – the rise in stamp duty and the fall in property prices.

But a different story may be emerging. Strutt & Parker revealed in August that PCL sales increased by 4.4% year-on-year in the second quarter of 2018 and most of those transactions came from properties in the sub-£2m price bracket.

While it would be premature to say that this is conclusive proof that the market is buoyant once more, it is perhaps worth noting that the Strutt & Parker figures are linked to a surge in viewings dating to the start of this year. It’s only now that buyer interest is being converted into sales.

Similarly, Chestertons’ figures from August reveal a 24% year-on-year increase in viewings of PCL properties over the first six months of 2018.

“High net worth clients are looking past the tax changes while focusing on buy-to-let as an excellent underlying investment opportunity to provide positive returns for their portfolios.”

Marcus Dixon, head of research at property data firm LonRes, recently observed that super-prime sales were picking up as buyers took advantage of a drop in asking prices. According to Dixon, the 12% rise in stamp duty for properties over £1.5m is simply being factored into the overall cost of a property, which is still lower than it would have been two or three years ago.

Even the buy-to-let market, which has gone through a period of prolonged turbulence, appears to be levelling out: Knight Frank recently reported that its number of ‘super-prime’ lettings has risen by 34%, from 102 in 2016 to 137 in 2017.

There is still understandable caution being exerted by potential buy-to-let investors, partly brought on by the tax changes that came into effect in April but also by the ongoing confusion over Brexit.

However, high net worth individuals will continue to seek out investment opportunities. Factors such as transport links (for example, the Crossrail Effect) and proximity to good schools remain key influencers on the market.

Terraced house for sale in West-London.

Buy to let properties are continuing to be compelling investments.

To that end, Investec recently launched a new 10-year, fixed-rate buy-to-let mortgage offering to sit alongside its existing portfolio of 2-, 3-, 4- and 5-year fixed-rate mortgages. Aimed at high net worth borrowers, it’s both a response to their unique and complex requirements as well as in anticipation of another rise in interest rates.

Investec Private Bank’s Peter Izard says: “Despite uncertainty in the buy-to-let market and the potential impact of Brexit, it continues to show resilience and the fundamentals remain compelling.

“We’ve seen high net worth clients reassessing their strategies and adjusting their portfolios, enabling the asset class to continue providing them with long-term capital potential, although possibly with slower growth. They are looking past the tax changes while focusing on buy to let as an excellent underlying investment opportunity to provide positive returns for their portfolios.”

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This new 10-year mortgage has been launched with a fixed rate of 3.69% for lending up to a 70% LTV and borrowers will have the ability to overpay up to 10% per year without an early repayment charge.1

“Listening to our clients’ requirements, there was strong demand for a longer-term fixed product, particularly with future interest rate rises anticipated,” says Izard.

“At Investec Private Bank, we’re passionate about enabling our clients to achieve their ambitions. Relative to our competitors, we offer a wide range of buy-to-let fixes and have taken the opportunity to broaden this offering.”

Lysanne Currie writes about business, travel and luxury for a variety of magazines, including Tempus, Victor, Robb Report UK, The Ethicalist and Meet The Leader.

 

1 Overall representative example based on borrowing of £1,100,000. The overall cost of comparison 3.9% APRC. Initial rate 3.69% fixed for a loan term of 10 years (120 instalments of £3,382.50). Fee £5,500 (0.5% of the loan) Total amount payable £1,514,760.

Disclaimer

This article is for general information purposes only and should not be used or relied upon as professional advice.

No liability can be accepted for any errors or omissions, nor for any loss or damage arising from reliance upon any information herein. It is advisable to contact a professional advisor if you need further advice or assistance as the implications of buying an investment property can vary depending on an individual’s personal circumstances and may be subject to change in the future.