What a changing environment for landlords means for buy-to-let investors

A series of legislative, fiscal and economic conditions have converged in recent years to alter the landscape of investing in the private rented sector.

Changes to tax allowances, rises in interest rates and a stricter regulatory environment have seen an upward trend in landlords selling up their properties.

In this blog, we explore these developments in greater depth and explore why investing in Oxford and Oxfordshire’s unique prime property market remains a safe and stable long-term investment.

Higher costs

Although interest rates still remain relatively low by historical standards, the last two years has seen the cost of borrowing increase. Since December 2021, when the base rate was just 0.1%, the Bank of England has raised interest rates on fourteen separate occasions to its current level of 5.25%.

As a result, both fixed and variable buy to let rates have risen, and currently stand at an average of 6.22% and 6.78% respectively, leading many landlords to reassess their property investment strategy.

This has been accompanied by simultaneous reductions in the Capital Gains Tax allowance- which fell from £12,300 to £6,000 in April 2023, with a further reduction to £3,000 expected in April 2024.

More expensive borrowing combined with rises in tax liability has prompted an increasing number of landlords to decide now is the right time to sell up, with more than 150,000 sales of privately rented properties in 2022/2023, up from 98,000 in 2020/2021.

Shifting regulatory environment

The regulatory landscape is at a moment of significant change with planned landmark changes in legislation on the horizon.

The Renters (Reform) Bill under consideration by Parliament is thought to be the most significant piece of legislation in the private rented sector in decades. It will make fundamental changes to renting- with the abolition of six or 12 month assured shorthold tenancies and ‘rolling’ monthly contracts becoming standard.

Other major changes in the proposed new law include increasing the notice period for rent rises and stricter conditions for evictions. A new ombudsman will also be established for the sector which will have the power to issue significant fines to landlords in case of noncompliance with the raft of new regulations.

Additionally, a Government U-turn on Energy Performance Certificate (EPC) ratings has proved costly and frustrating for many landlords.

In March this year, it was announced that private landlords would be legally required to ensure their properties were EPC rated ‘C’ or above by 2025. However, this planned change was dropped in September, with many landlords already having carried out expensive upgrade work.

Long-term stability

Over the last two years, landlords have seen more modest returns on their investments in buy to let property and greater fiscal and administrative burdens, felt by cash buyers and non-cash buyers alike.

Yet, there is still a strong case for investing in Oxford and Oxfordshire due to the region’s significant economic pull factors which means its property is highly sought-after.

The area enjoys a buoyant local economy driven by the University of Oxford, and robust scientific, research and automotive industries, recently boosted by a government subsidy for EV manufacturing at the city’s Mini plant.

Oxford and the surrounding county possess a unique, resilient prime property market.

While renting out property may not currently be a significant ‘income generator’, it should still be seen as a secure, reliable investment option to hold your cash, with significant appreciation likely in the medium to long term.