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Buy-to-let sector continues to see growth despite challenges

Despite the challenges landlords and property investors are currently facing, there has been a rise in the number of businesses within the buy-to-let sector.

The buy-to-let sector continues to grow as there has been an annual increase in the number of businesses operating in the industry. This is happening as the private rented sector is continuing to provide ample opportunities for buy-to-let landlords.

Debt advisory specialists, Sirius Property Finance, examined government figures on the number of VAT and PAYE enterprises operating within the UK residential and commercial rental sectors. Currently, there are 60,000 businesses operating in the buy-to-let sector as a whole.

This figure is an increase of 2.1% over the past year and equates to 12.8% growth across the last five years. The analysis illustrates that property investors remain undeterred, despite additional pressure from the government through increased legislative and tax obligations.

London continues to be the buy-to-let sector capital of the nation with 12,160 rental businesses. This accounts for one-fifth of the UK total. But there are other areas that have seen strong growth in the number of businesses in the industry.

The south east and north west are among the most prominent regional markets with 13.2% and 10.5% of the total number of buy-to-let businesses across the UK, respectively. Over the past 12 months, Wales has recorded the biggest rise in the number of businesses with 3.5% growth. And the north west leads the way with five-year growth of 15.4%.

What are the biggest challenges in the buy-to-let sector?

While there has been an increase in businesses within the buy-to-let sector and there are plenty of opportunities on offer, there are still certain hurdles that all investors should be aware of. In the past few years, the sector has been the target of substantial reforms.

This has come hand in hand with reports of landlords leaving the buy-to-let sector. However, a few recent reports have suggested that this does not reflect the true position of many in the sector and that actually there is a picture of optimism among those operating in the sector.

However, the industry still comes with challenges, and this includes recent changes to capital gains tax and corporation tax. And a proposed ban on Section 21 evictions and required improvements to EPC ratings in rental properties are creating additional challenges for some landlords.

And due to the country’s cost-of-living crisis, this is causing landlords to have higher running costs, particularly when it comes to maintenance and energy bills. Those with new-build properties that are more modern and energy efficient may avoid major challenges in these areas, though. So, there are ways to navigate many of these moving forward.

What’s behind the growth in BTL businesses?

Despite changes in the industry, property investment in the UK remains one of the most popular asset classes. This is because buy-to-let investors are continuing to reap the rewards through rental yields and capital gains. And strong tenant demand is a key factor keeping the sector prosperous.

As there has been an increase in the number of buy-to-let businesses, the recent findings by the debt advisory specialists further show that professional and portfolio investors are fuelling the buy-to-let sector boom. Seasoned landlords that have been in the market for a number of years will also be more experienced and used to dealing with market wobbles and challenges.

Kimberley Gates, head of corporate partnerships at Sirius Property Finance, said: “The UK’s buy-to-let ecosystem continues to grow and grow despite the increasing number of deterrents put in place by central government, the most prominent of which are probably recent changes to Capital Gains and Tax Allowance rules.

“However, demand for rental homes is not going to diminish, so the rental sector remains a profitable one to be part of. As such, many landlords have decided to set up their own businesses in order to improve the profitability of their enterprises and this is likely driving the increasing number of companies operating in the sector.

“It would be bold to predict anything other than continued growth in the buy-to-let ecosystem over the coming months and years, especially in densely populated urban areas, because as long as homeownership continues to be so incredibly expensive, rental demand will always be strong.”

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