For many investors and landlords in today’s UK property investment market, the risk:reward disconnect of buy-to-let investing has never felt more stark.
At GetGround we talk to hundreds of landlords weekly – both newcomers to the sector and experienced incumbents – and their observations are consistent: they are being skewered by a system that knows it needs them but never makes it easy to participate. The odds are stacked against landlords in the private rental sector, despite most people acknowledging they are integral to it.
But while the risks feel sky high, the rewards are still there for those that persevere to seek them.
Property investment is a long-term game. There are few assets that perform as solidly as UK property, but, fix-and-flips aside, it’s an asset that landlords and investors enter with plans to be around for a while.
As such, it’s fundamentally important to the success of every investment that every investor picks the right buy-to-let property for their circumstances. You can’t change horses halfway through the race.
Increasingly our research and customer experiences coincide to make us conclude that the future of modern buy-to-let investing may lie in new build stock.
New builds fit the mould for a vast proportion of investors who seek fair investment and moderate effort for an attractive return. In today’s climate new build buying could be easy to dismiss. Here are some reminders on why those undeterred by negative assumptions stand to benefit hugely.
Energy efficiency is a vital consideration for any landlord or investor seeking a new investment. What used to be a good-to-have is now essential. With EPC requirements coming down the line – without concessions for Covid-related delays – forward-thinking landlords are choosing new investments that are going to help them not hinder them turning a profit from year one.
Research by Lovell Homes in late 2022 found that the average second hand home emits two and a half times more CO2 than its corresponding new build. New builds require less (if any) remedial energy efficiency works and offer landlords the lowest relative energy costs anywhere in the market. Landlords that pass on lower energy costs to tenants benefit too. Few things keep tenants more happy and settled than lower bills.
Anyone who has taken any notice of planning application success and failure in the last few decades will know that permitted developments are hard to attain. Such is the control local governments and councils have on developments in their area, those that do win approval and emerge from the ground are sure to be located where they are most crucially needed. Look at Manchester, for instance – the UK’s second city. Here, schemes by home-grown developers like [Salboy] as well as established national builders like [Bellway], are creating homes that appeal to owner-occupiers and private investors alike.
New build schemes like these are putting homes where local people need them most, homes that allow young professionals and families to put down roots and build their careers, and homes for people contributing to their local economies and communities. In other words, these developments make good investments. They have strong tenant demand and are highly suitable for tenants.
On a practical level, new versus old build? It’s all in the name. New builds are typically easier to buy than second hand stock because every purchase is chain free. Then, keys in hand, there’s next to no work to do on arrival and many developers provide heavily subsidised furniture packs making properties move-in ready. Buying a made-to-let property means minimal maintenance too, especially when buying from developers whose schemes are rubber stamped with the NHBC’s 10-year Buildmark warranty.
Lastly, new builds open the door to value appreciation before anyone moves in. When a buyer does purchase off-plan either before or during the construction phase, there is a possibility the value of the property will rise provided markets are favourable. But even in today’s climate where value inflation will be limited a while longer, buying off-plan should be no less appealing. The cost of finance is forecast to have much reduced by the second half of year and will remain lower from then on. New build buyers can look to obtain financing near to completion rather than now, allowing them the opportunity to lock in better mortgage costs at a later date.
Successive governments have tried and failed to turn the tide on new house building. New home targets have come and gone unmet, and too many good planning applications have been squandered under red tape.
Build-to-rent, while having its place, will never be the silver bullet we need to erase our housing deficit. Build-to-rent denies tenants and homeowners the opportunity to co-create successful communities with one another, and as such build-to-rent schemes are not permitted in some of the most necessary, in-demand areas where private developments could instead flourish.
Matching more private investors with new build opportunities needs to become a priority in the UK property industry. It’s a win-win-win situation for renters, investors and policy makers alike. Sometimes the best ideas aren’t those that are lurking in obscurity, waiting to be uncovered. Instead the best ideas are out in the open but not enough of us have turned to look at them yet.
Moubin Faizullah Khan is CEO of GetGround
