The Budget And How it May Affect B2L And Property Crowdfunding
Further to yesterday’s Autumn Statement, I wanted to put across my thoughts as there were quite a lot of property orientated issues raised including how it may affect property crowdfunding.
George Osborne clearly wants to try and stop property being used as an investment vehicle for ordinary people.
Who knows what his motivations are but his changes always seem to favour the large house builders and institutions. He seems to base his decisions on what is happening in the London market as opposed to the country as a whole (there’s a surprise!). I think the claims by some people that B2L investors push house prices up and make property unaffordable are vastly exaggerated and if this is an attempt to address that supposition, it will be shown to be misguided.
Accidental landlords and other landlords with small portfolios, hit by a continual barrage of legislation that creates more work and ever decreasing profits will inevitably sell up in huge swathes leading to larger landlords /cash rich investors, for a short while at least, being able to purchase at reduced prices as supply exceeds demand.
Regarding the property market as a whole, the underlying situation is that in many areas demand outstrips supply. Population keeps increasing while construction of new dwelling has been decreasing. The cost of building new property continues to rise and there clearly has to be a balance between the cost of existing stock and new build – who would pay twice as much for a new house as a similar existing property down the road? As long as this situation remains property prices will be underpinned and continue their inevitable rise.
If he believes these changes will make it easier for people to get on the property ladder – he is wrong. People will still need to save large deposits and pay for mortgages which they find hard to do. If indeed his actions do force house prices down, home owners (who are more likely to be Tory voters) may find themselves in negative equity and will not be well disposed towards Mr Osborne or the government. Another Tory u- turn will no doubt quickly be implemented when they realise they have shot themselves in the foot.
Leveraging for landlords is now much more difficult and with little prospect of profit due to interest relief being abolished many landlords will not enter the market at all. Rents will be pushed up due to less competition and the need for landlords to cope financially with burdensome legislation.
What does it mean for The House Crowd?
We are in the midst of completing a full review of all the details, which will lead to a summary of all the changes, their impact and potential opportunities these bring in order to ensure we are providing the best returns for our investors. In the meantime, these are my top level thoughts about how The House Crowd may be affected.
We have always believed Buy 2 Let should be viewed a long term investment. There are various parties with conflicting interests at work and governments are always tinkering and making changes to address the balance one way or another. Whilst in some respects these recent changes may initiate a bad period for some landlords, we are ideally placed to weather any storm and in fact given the nature of our business actually benefit from it.
As a company, THC has no need of mortgages so are not affected by the stopping of interest rate relief.
Many small and amateur private landlords will sell up as a result of all the negative new regulations and stamp duty increase and this may lead to short term price falls in some areas.
Again, every situation presents opportunities, and cash rich buyers like The House Crowd will be able to purchase at keen prices. We can negotiate attractive prices as we are cash buyers and can absorb the 3% stamp duty by negotiating those better prices, so we will pay no more than we would have otherwise and possibly less. In any event it appears that companies/ funds owning more than 15 properties will be exempt so it may not affect us at all.
The only real downside for the House Crowd is there will be a smaller pool of prospective investor purchasers for our properties in the short term, though we can always look to institutional buyers if we want to sell chunks of our portfolio.
However, there would need to be a very significant drop in prices to make houses more affordable for home buyers. If that happens many homeowners would be in negative equity – not something that would make the government popular and will therefore pull out the stops to prevent.
The changes will benefit larger landlords and companies while the losers will unfortunately be the smaller individual landlords.
It may well encourage those who believe in property as an investment vehicle to look to alternatives such as crowdfunding where they do not have the burden of dealing with legislation and can benefit from being part of a big organisation with economies of scale and enhanced purchase power. It may well help increase our client base.
Sadly, many tenants (who the government purports to want to help) will also lose out because rents will continue to increase whilst competition will decrease.
We are constantly approached by companies that work with the housing departments of local councils. They all tell us the same story about how councils are so utterly desperate for private housing stock that they are increasingly being forced to house people in hotels. Taking London and the South East as an example, the housing shortage is so bad councils are now relocating people as far afield as Birmingham and Manchester with no thought to the social implications of disrupting families and communities. In our opinion, the government should be supporting private landlords in order to ease the housing crisis, not punishing them.
I believe Osborne has vastly underestimated the value that the PRS provides in supplying badly needed housing and his actions will be seen in retrospect as a huge mistake. It is inevitably going to lead to an even greater shortage of supply and there will simply be nowhere for people to live as they can neither afford to rent or buy. Longer term, due to lack of supply, there will be a big upward pressure on rents which will benefit those like THC who hold large property portfolios.
Everything is swings and roundabouts.
In a couple of years, once the government realises the repercussions of what it has done, they will make B2L more appealing again. In the meantime, we can take advantage of depressed prices in the B2L market and also look at the incentives available for house building and build to let that we can also take advantage of and as a well-funded crowd funding company we are in an ideal position to capitalise on the fact there will be many more opportunities in those areas.