Simply Business's top 6 buy-to-let predictions for 2017

The last 12 months have been pretty tough for the UK’s landlords, so what will 2017 have in store? We take a look at some of the forces that are likely to shape the buy-to-let market over the next year, and make our top six predictions for landlords.

It’s fair to say that 2016 has been a turbulent year for landlords, who have been impacted by everything from new, more stringent buy-to-let mortgage criteria to a slew of tax relief changes.

Some buy-to-let changes are yet to take effect, and with political events impacting the financial markets and the property market, it’s likely that 2017 will bring plenty more twists and turns for the country’s buy-to-let landlords.

We’ve trawled through data and expert analysis to bring you our top six buy-to-let predictions for 2017.

1. House price growth to slow

Experts are predicting that the asking price for properties will rise by just two per cent on average across the UK in 2017, with growth grinding to a halt in London and falling in some areas. Although uncertainty surrounding the Brexit vote is causing some nervousness in the property market, things should keep moving as high demand and relatively short supply continues.

House price growth is expected to be strongest in southern areas outside of London, continuing a 2016 trend, while most experts predict a fall in London’s priciest boroughs.

2. Mortgage criteria get tougher

Buy-to-let mortgage criteria tightened up in 2016, and 2017 sees the introduction of even more stringent requirements.

From January 2017, buy-to-let borrowers need to prove that they could cover their loan interest with their rental payments even if rates rose to 5.5 per cent. The regulator’s new rules may mean that investors need to raise larger deposits or hike their rent to meet the new mortgage criteria.

A recent Simply Business poll showed that over 60 per cent of respondents are worried about rising mortgage rates.

3. Landlords to leave the market

The tightening mortgage criteria coupled with the tax changes could mean that many landlords are forced out of the market according to David Cox, managing director of the Association of Residential Letting Agents (ARLA).

Cox predicts that 2017 will be a ‘raw year for renters’, as some landlords are forced to sell their properties, others are stopped from expanding, and newbies hoping to enter the buy-to-let market struggle to do so.

High demand for rental properties is likely to continue, however, which means that supply is likely to be squeezed.

4. Rental prices to rise

For landlords that do hang on, the fall in supply and the need to bear higher buy-to-let costs is likely to bring rent rises. John Goodall, the CEO of property investment platform Landbay, predicts that 2017 will see rents rise at almost triple 2016’s rental inflation rate:

“Tenants will have little choice but to compete for what properties are on offer. As a result we expect rents to rise faster than the pace of inflation next year, with growth tripling to three per cent by the end of 2017.”

It’s thought that rental prices in the Midlands will continue to do particularly well - the Birmingham Curzon Street area has seen rent rise by 23.7 per cent in five years, well above the national average of 8.8 per cent across the country. The rental markets in Leeds, Sheffield and Manchester have been booming too, and as many people look for more affordable alternatives to London, this is likely to continue.

Check out our guides to the best buy-to-let areas in Birmingham and best areas for buy-to-let in Manchester if you’re considering investing in these areas.

5. Boom in number of limited company landlords

We’ve reported previously on the surge in landlords buying buy-to-let properties through limited company structures to avoid being hit so hard by the tax changes, and all signs point to this trend continuing through 2017.

In autumn 2016 a staggering six in 10 buy-to-let mortgage applications were made through limited companies, and with a further 25 per cent of landlords saying they plan to use this structure in the future, 2017 may well be the year of the limited company landlord.

6. Landlords stay positive

It looks like 2017 could be a challenging year for landlords, but those who manage to stay the course and cope with the challenges may see ample rewards as demand outstrips supply and rent is pushed up.

Some experts predict that 2017 will be a good year for experienced, savvy landlords, who are able to navigate the changes and capitalise on high rental demand.

Landlords seem to be coming into 2017 feeling positive. A Simply Business poll at the end of 2016 showed that 62 per cent of landlords were confident about the future of buy-to-let.

What do you expect 2017 to bring? Tell us in the comments.

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