property investment

If you’re interested in the Wales buy to let market, you need to know about major changes in the pipeline.

Why Wales Buy to Let?

Investing your money into UK property is one of the best things you can do. Investors enjoy strong rental returns on a background of year-on-year growth in most areas since 2012. The majority of investor demand has been on areas of outstanding performance, including Wales. To clarify, since May 2020 Wales gave the highest increase in house prices across the UK with a massive 13.3% gain. Scotland was a close second, giving homeowners a 12% raise in property value. So, why has Wales been so popular amongst investors? 

Firstly, Wales buy to let rental yields are amongst the highest in the UK, averaging 6-7%. To add to the attraction, houses in some areas are sold for as little as £30,000. Couple these numbers with beautiful landscapes, rich medieval history and abolished Severn Bridge toll fees and the appeal is clear. All of this is great for investors, but how is the “frenzy” of demand affecting the locals? 

Displacing the Locals 

The obvious benefits of Wales buy to let property have led to a massive shortage of supply to locals. One example is in the Dwyfor Meirionnydd area where almost half (44%) of properties are sold as second homes. In interviews with BBC News, locals described the housing market as “mad”. They stated that “houses are being sold before viewings” and for “£20,000 – £30,000 above the asking price”. 

One resident, Megan Davies from Aberdare, was looking for a family home for her two children and partner. She accepted an offer on their home within moments of listing and then could not find somewhere to move into. Additional concerns were preservation of Welsh language use in communities and reduced rental supply from property use as holiday lets. In response to the ongoing issues, Welsh residents petitioned the government to take action. 

The Coming Changes to Buy to Let in Wales 

On the 6th July 2021, the Welsh government responded to its residents. Their aim is to control the purchase of second homes and holiday lets by investors and companies that buy houses. They will do this from 3 different angles: 

  1. Stricter taxation on second homes
  2. Introducing a holiday let mandatory registration scheme
  3. Support for prospective homebuyers 

Let’s go through each of these in more detail. 

Stricter Taxes on Second Homes 

Recent changes have already made taxes stricter on second homes. This includes a 4% surcharge that was introduced in December 2020 for investors and companies that buy houses. But, the story doesn’t end there. The Welsh government have given local authorities the power to double council tax for second homes. Pembrokeshire council have already began enforcing this, and are using the money raised to build developments for the locals. 

The Welsh Minister for Climate Change, Julie James, is supporting this change to spread to more areas as it succeeds. This is bad news for landlords who may face heavy surprise costs. 

Mandatory Registration for Wales Holiday Lets 

Investors use many strategies to generate revenue in the Welsh property market. These include buy to let, BRRR (buy, refurbish, refinance, rent), HMO (houses in multiple occupation) and furnished holiday lettings. The beautiful Welsh landscape lends itself particularly well to the latter with many city dwellers searching for countryside breaks. 

If the UK is to stay in line with its European neighbours, mandatory registration is the natural next step. It is yet to be decided how the Welsh government would use this registration scheme. But, other countries such as France have used it to maintain accommodation standards and monitor the number of units. It would also more easily allow negligent/noncompliant hosts to be banned across multiple reservation platforms. 

This change could benefit the sector as a whole. It has even been called for UK wide by short-let-giant AirBnB. 

Support for Prospective Homebuyers 

Supporting homebuyers is usually aimed at first-time buyers and those in housing need. The Welsh government and housing associations already offer 4 schemes in support of qualifying residents: 

  1. Help to buy
  2. Homebuy
  3. Homes within reach shared equity
  4. Rent first 

Despite this, the announcement on 6th July stated that a new pilot support package will be tested. It is unclear how these changes will affect the Wales buy to let market. However, these schemes usually affect new build properties and those in the most affordable areas of Wales. This may lead to further climbing house prices in these sectors due to rising competition. 

Conclusion 

There are tighter regulation controls coming to the Wales buy to let market. This may deter some investors but for many, the many benefits will still outweigh the drawbacks. If you plan for these then your venture into the land of the red dragon will remain a profitable one.

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