During 2017 we saw a number of significant changes that impacted on the residential investment market in Scotland from changes to mortgage tax relief to the end of the Short Assured Tenancy as the new Private Residential Tenancy was introduced. The result is the hurdles to investing and benefitting from strong returns in property got much higher and thus the opportunity for investors to make mistakes grew considerably.
As a result, I am sure that most of us hope that 2018 will be a year with less tinkering by government to allow investors to draw breath and take stock. So, let’s take a look at what might be in store in 2018.
There may be fewer properties on the market to rent
The reduction in mortgage relief and taxation are beginning to be felt and this is likely to have an impact on some landlords’ profits especially on those who have potentially invested unwisely. As a professional asset management company, we are always seeking ways to help our clients continue to maximise returns which is why we offer a 360º review service to help investors ensure their investments are working as effectively as possible.
Rents will continue to increase
With more people choosing to live in the Private Rented Sector demand for good quality rental stock looks set to remain high. Added to this there is a lack of supply which is being exacerbated by a huge increase in short term lets resulting in increased competition for available stock hence lower void times and continued upward pressure on rents. The population in the capital is forecast to increase at a rate of 5,000 people per annum and rents topped £1,000 per month for the first time last year. The result is that RPZ (Rent Pressure Zones) are highly likely to be introduced. I don’t want to go into a lot of detail on RPZs as I have written at length on the subject in another blog but if anyone would like to discuss the potential impact they will have do please get in touch.
House price inflation will continue but at a slower rate
Data from the Royal Institution of Chartered Surveyors shows a reduction of new stock coming onto the market. The result is a significant undersupply in the market whilst demand levels remain robust which will continue to fuel house price inflation. This is especially true in Edinburgh with transactions in the city falling by 3% which is the first annual drop in six years. According to Hometrack, Edinburgh recorded the fastest house price growth in the UK this September with annual uplift figures of 6.7%. Hence capital values should continue to rise though our feeling is that we will see a cooling off in the market in 2018 as the combined headwinds of economic and political uncertainty begin to take effect. We expect house price inflation to slow to somewhere between 2% and 3% per annum.
More overseas landlords will invest
For any investor the UK’s property market boasts an incredible amount of potential. Between January 2002 and January 2017, house prices in the UK rose by 147% (source: Rightmove). Furthermore, over the last 20 years, UK property prices have grown by 14.34% p.a. on average. The FTSE All Share index delivered 3.46% p.a. on average over the same time period.
Recent research by Liquid Expat Mortgages has shown that foreign nationals and ex pats are being attracted to the market due to the weakness of the Pound. For example, there has been a 20% increase in foreign nationals and expats within the UAE investing in UK property year on year. These investors are increasingly looking at areas outside London to invest as capital deployment levels are significantly lower and yields are much higher.
Landlords will need to be smarter than ever before
With the increasing levels of regulation, changes to the legal framework and higher taxation DIY landlords face many pitfalls that could end in loss of income, prosecution and, in the worst case, criminal charges. At Glenham we take on that burden and fulfil the majority of a landlord’s obligations on his or her behalf. We are primarily an asset management company and, as such, our role is to seek to mitigate our clients risk while at the same time looking to maximise their returns. We do this by being immersed in the market and always looking to find ways of reacting to changes in the market place to help our investors continue to benefit from strong returns.