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More first-time landlords are entering the buy-to-let sector

The stamp duty holiday and low interest rates have enticed more small and first-time landlords to enter the buy-to-let sector.

Fewer investors are relying on only cash to purchase properties. Data from major London estate agency Hamptons reveals 52% of landlords bought property with cash during 2020. This is the lowest figure on record. In 2017, the share to buy-to-let properties purchased with cash peaked at 62%. In each subsequent year since, the proportion has fallen.

Aneisha Beveridge, head of research at Hamptons, comments: “While investor purchases remain low compared with pre-2016 levels, the stamp duty holiday has tempted more small and first-time landlords back into buy-to-let, reversing a shift towards portfolio investors.

“Most of these new entrants are relying on a mortgage to fund their purchase, despite the changes to mortgage interest tax relief eating into the profitability of the sector for some.”

Attractive market conditions

The stamp duty holiday, which was announced in July 2020, has accelerated the number of first-time landlords entering the market. During the last half of the year, the proportion of landlords purchasing properties with cash fell to only 50%. This is a record low with first-time landlords taking advantage of the tax holiday savings.

First-time landlords typically use mortgage finance to fund their property investments. Because of this, cheap borrowing costs have made it an even more attractive time to enter the market. Additionally, during times of uncertainty and instability, and when savings rates are especially low, UK property can be a safe haven as a form of investment.

With these attractive market conditions, the number of buy-to-let landlords has reached 2.7m, which is an all-time high. And nearly half of buy-to-let landlords are optimistic about 2021 despite challenges and uncertainty ahead.

Aneisha Beveridge says: “Since 2016 the rental sector has been buffeted by tax and regulatory changes, resulting in 250,000 fewer rental homes in England since the sector’s peak in 2017.

“But record-low interest rates on cash in the bank combined with the lure of a stamp duty holiday has enticed a new generation of investor, many of whom had no previous landlord experience.”

What first-time landlords need to know

In the past few years, there has been a raft of recent legislative and tax changes to the buy-to-let sector. Additionally, as the sector has become more ‘professionalised’ in the past few years, there’s been a record number of buy-to-let landlords setting up limited companies. Seek professional advice to see if this is right for you.

It’s also important for first-time landlords to know the latest rules, regulations and best practice in the private rented sector. There is a wealth of knowledge online for new buy-to-let landlords.

NAEA Propertymark, the National Residential Landlords Association, and the British Landlords Association provide a range of helpful information. Check out HMRC and the government’s websites for additional resources for buy-to-let landlords and investors.

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