Mortgaged buy-to-let landlords will be looking at their finances in light of the stamp duty rise and mortgage interest relief restrictions. But the appeal of investing in private rental property at auction is not expected to abate.
In fact, Savills’ latest research finds demand for rented homes will grow by 1.1m over the next five years, with constrained supply likely to push up rents.
There was a full house for our first auction of 2016, with more than £65.4m of property sold, from £150 for a parcel of land in West Sussex to £2.3m for a double-fronted property arranged as eight flats in Clapton, E5. Although buyers and vendors have moved quickly in the first few weeks of 2016 to enable deals prior to the introduction of the “additional home” stamp duty tax, we expect the auction market to adjust to the change, and interest from second home buyers and landlords to endure. In addition, owner-occupiers have been increasingly active in the auction room, attracted to the speed and transparency of the process.
In light of this new fiscal and regulatory environment, we expect lower-value, higher- yielding properties to become increasingly sought after. This is owing to the cash impact of the tax changes: an additional property purchased for £250,000 would have a £10,000 stamp duty charge, but an additional property purchased for £1m would have a £73,750 stamp duty charge. Auctions are ideal venues for finding properties with potentially high yields at the lower end of the market. At Savills auctions, our average lot price last year was £340,000.
Rising rental demand is not constrained to the capital: the commuter belt and the UK’s major cities are also experiencing significant interest in the private rented sector. Manchester, Reading, Edinburgh and Bristol have all been highlighted by Savills research as some of the most attractive cities for investment in the rental market. A combination of their strong economic growth prospects and reputation as vibrant, desirable places to live makes them attractive locations for auction bidders and tenants alike. Although our national auctions take place in London, we sell lots from around the country – including a substantial detached building arranged as six flats in Greater Manchester which sold for £150,000 at our December auction.
Looking at the demographics of the private rented sector, the number of 35- to 49-year-olds renting privately is expected to increase to more than 2m households by 2019, according to Savills. Taking this into consideration, auction buyers are likely to pay particular attention to houses and properties with outside space. A number of tenants in this age bracket will be renting with children, making the attributes they look for in a property different to student renters and young professionals. The number of bedrooms and proximity to good schools will become key considerations for landlords as well as families.
That being said, with tighter mortgage regulations and significant deposits required to get a foot on the property ladder, there is still substantial demand from recent graduates and professionals for private rental properties. The number of under-35s in private rental accommodation has risen by more than 1m in the past decade, according to the latest English Housing Survey. For these groups, convenience is key, so houses and flats close to transport links and with easy access to local amenities will be the most sought after. This is particularly true in London, where house prices are highest and the barriers to entry are greatest.
For those looking to invest in the London property market but unable to afford a house, we also offer unusual lots, from unexcavated basements to pieces of pavement and alleyways, that provide access to the market for a fraction of the price of a home. At our February auction a 67ft passage sold for £26,000 from no reserve, while an alleyway in Shepherd’s Bush sold for £2,200 in December. Our 2 March sale included a parcel of land used as a garage in Westbourne Park with a guide price of £18,000.
Chris Coleman-Smith is head of auctions at Savills
