By the time you read this the recent announcements concerning increased stamp duty for Buy To Let (BTL) may be old news and we will be heavy into the consultation period. Maybe the landlords with multiple property, 15 or more, will be exempt. Maybe the companies making a significant investment into the residential sector will be exempt. The devil is in the detail and it is too early to know what the detail will be. At least when I wrote this article…
If we take a step back, does it matter? One investor told me that 60% of the future profits are a result of the increase in home value. The 40% is attributable to the rental income component. As BTL is a sub-section of the larger residential housing sector, the majority of activity that drives home values is from the owner occupants. In other words, the drivers for how well an investor does from the capital appreciation continue as the tax has no impact on most homeowners. That said, what ultimately drives the capital value of homes is demand and the monthly cost of ownership.
Demand & Demographics
The bulk of the demand comes from people wanting or needing to live somewhere. The UK population trends are generally favorable on this front. Rather than having a shortage of new workers to fund the retirement of an aging population, the UK has a healthy balance. For the most part, a rising population is a good sign for those who invest in housing and those who expect to draw on a pension later in life. We need workers to support the retired and we need multiple workers for each retired person. These workers need to live close to work.