This year, we have seen several changes in the property sector, including higher rent prices, which are pointing to a good market this year.
If the past two years have taught us anything, it’s that the UK rental market is one of the most robust assets in the market. Plus, becoming a landlord can reap many rewards, such as:
Passive Income
One of the most important advantages of owning investment properties is the rental income. If the rental revenue exceeds the property’s expenses, (such as property taxes, insurance, repairs, and upkeep) as well as the financing cost, the landlord receives a steady source of income, making it a great financial investment.
Tax Deductions
Another great advantage of having a rental property is the tax benefits. For investment homes, there are a host of tax deductions available, including:
- Deductions for business expenses (if the property is owned by a company)
- The total cost of the property, including insurance, taxes, and maintenance,
- Depreciation
- Interest on a mortgage
These benefits are exclusively accessible to real estate investors, and they can mean big tax savings over time.
However, it is good to be aware of the upcoming changes to landlord tax legislation’s coming into action this year:
- Mortgage Interest Tax Credits: A 20% tax credit for landlords' mortgage interest has been phased in since 2017. The 2020-21 tax year was the first where the credit fully replaced being able to offset mortgage interest against income tax – and tax returns for that year must be filed by the end of January 2022.
- Further Interest Rate Rises: In December 2021, the Bank of England raised its basic interest rate from 0.1 percent to 0.25 percent. If your buy-to-let mortgage contract is about to expire this year, now is the time to hunt for a new one. Nobody can predict what the Bank will do, but most expect more rate hikes this year, possibly to 0.75 percent by summer.
To find out more about landlord legislation changes, click here.
Property Equity and Appreciation
In the majority of cases, property values will appreciate over time. This means that the landlord will be able to profit from the value of the property in the future, as well as the extra money it makes from being rented.
The landlord is also able to pay off the mortgage using the extra income, meaning that the landlord is increasing the value of the property without having to pay the mortgage or interest.
So, could property be your best investment for 2022?
Demand is Outpacing Supply
Growing property prices in the UK are a result of a number of factors, the most significant being a lack of supply. While the stamp duty holiday is no longer in effect, the demand generated by the tax exemption continues to support the UK property market.
With over 1.4 million property transactions in 2021 alone, demand for UK property continues to outstrip supply. In particular, property demand was about 50% greater at the start of the year compared to the same period from 2018 to 2021. The flow of new property supply, on the other hand, was 15% lower, according to a recent article by Property Reporter. *
The UK has been striving to tackle housing supply challenges, but with 1.2 million additional property transactions expected in 2022, the government’s goal of building at least a million more houses by 2025 will fall short of demand, making it the ideal time to sell a property. **
Expanding Population
Another reason why property could be your best investment choice in 2022 is the growing population of the UK, with the year-on-year growth implying that more tenants will inevitably enter the market. The UK’s growing population, which is expected to reach 74 million by 2040, will only increase the demand for rental housing. *
Also, older tenants are becoming a more prevalent demographic across the UK. The number of over-50’s renting out properties is on the up, with 1.2 million currently on the market, which is a record high. By 2050, about a quarter of the population will be 65 or older, increasing the incentive to invest for long-term rewards. *
Looking to reap the rewards of property investment? Contact our expert estate agents for more information.
*According to Property Reporter
**According to the Local Government Association
