Is buy to let still a good small business option?

Here, we look at why there is ample opportunity to take advantage of the limited supply and growing demand of the buy to let sector.

There’s no denying the British love affair with real estate. Much of this country’s wealth is tied up in bricks. There are more buy to let signposts than leaves on trees when you walk around a street anywhere in the country.

London attracts investments from all over the world. New financial start-ups are making it easier to invest in property and sell your house quickly. It’s a vibrant and lucrative sector that everyone is involved in either as buyer, speculator, or seller. Perhaps it should come as a surprise that this passion for property is not helped by local taxes. British property taxes are the highest in the world.

Britain’s recent decision to leave the European Union has had an impact on the amount of money flowing in from abroad. Real Estate Investment Trusts have seen their share prices collapse while brokerage firms are losing revenues.

Even the Bank of England, the institution with maximum influence on the country’s finances, believes the real estate sector is experiencing a bubble. Mark Carney, the governor, believes it’s important to cut down buy-to-let investment to safeguard the housing market.

This begs the question – is buy to let still an attractive business model for small business owners?

A relentless sector

It seems the sector is a lot more resilient than previously expected. Industry figures from last month show that investors are putting a floor below the property market. Rightmove claimed that there was a growth in number of enquiries for buy-to-let properties since May. Data from Connells Survey & Valuation shows a similar trend.

Experts believe the sector has the ability to withstand short-term shocks. There is a shortage in social housing as well as the volume of house building. The gap between supply and demand could mean there is enough room for property prices to grow. For many investors, this evidence forms the basis for their investment.

Data shows that returns have been too good to resist over the past few years. Brexit and changes in regulation may be more likely to affect commercial property in London. Meanwhile buy-to-let investors can expect reasonable returns in seaside towns and commuter spots well outside the city’s limits.

Long-term investors see a sudden collapse in local property prices as a buying opportunity.

Creative lenders

The Bank of England has also clamped down on mortgage brokers and traditional lenders in the country. Lending criteria have been tightened, which means small businesses and private investors could find it harder to get funding for property.

But lenders have been getting creative with their products to attract more borrowers. Borrowers can use their own income to get access to better lending rates. Lenders are also being more lenient with properties where the rental income doesn’t meet required levels. Lenders have had to get innovative to meet targets and keep operating in the sector.

Bank rules and economic changes will only pan out after many years and they are sure to have an impact on the real estate sector. But for those looking to start new rental businesses, there is ample opportunity to take advantage of the limited supply and growing demand.

Ben Lobel

Delphine Hintz

Ben Lobel was the editor of SmallBusiness.co.uk from 2010 to 2018. He specialises in writing for start-up and scale-up companies in the areas of finance, marketing and HR.

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