Is Property Investment Dead or Just Changing?

Is property investment dead, or is it just changing?

In this episode of The HMO Podcast, I dive into the challenges facing investors right now - from economic pressures and new legislation to shifting market dynamics. 

But it’s not all bad news. I’ll share why a low-sentiment market can actually present some of the best opportunities, and why taking a long-term perspective is key to navigating today’s property landscape.

Here’s what we cover in the episode:

• 02:50 Current Economic Climate
• 05:44 Market Sentiment and Investor Confidence
• 08:33 Legislative and Regulatory Pressures on Landlords
• 11:49 Financial Headwinds Facing Property Investors
• 14:39 Market Dynamics and Property Values
• 17:54 Opportunities Amidst Challenges

This episode is sponsored by Tide Business.

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Transcript

Andy Graham (00:02.671)

Hey, I'm Andy and you're listening to the HMO Podcast. Over 10 years ago, I set myself the challenge of building my own property portfolio. And what began as a short-term investment plan, soon became a long-term commitment to change the way young people live together. I've now built several successful businesses. I've raised millions of pounds of investment and I've managed thousands of tenants. Join me and some very special guests to discover the tips, tricks and hacks, the ups and the downs, the best practice and everything else you need to know to start, scale and systemise your very own HMO portfolio now.

Andy Graham (00:40.783)

Today's episode is an important one. There's no doubt whatsoever that there's a great deal of concern amongst business owners and property investors in the UK. And the big question, the elephant in the room is, is property investing still the right thing? Well, the good news for you is that we are going to unpack what these challenges are in today's episode and we are going to answer this question. Please sit back, relax and enjoy today's episode of the HMO Podcast.

Hey guys, it's Andy here. We're going to be getting back to the podcast in just a moment, but before we do, I want to tell you very quickly about the HMO roadmap. Now, if you're serious about replacing your income, or perhaps you've already got a HMO portfolio that you want to scale up, then the HMO roadmap really is your one-stop shop. Inside the roadmap, you'll find a full 60 lesson course delivered by me, teaching you how to find more deals, how to fund more deals and raise private finance, how to refurbish great properties.

How to fill them with great tenants that stay for longer and how to manage your properties and tenants for the future. We've also got guest workshops added every single month, we've got new videos added every single week about all sorts of topics, we've got downloadable resources, cheat sheets and swipe files to help you, we've got case studies from guests and community members who are doing incredible projects that you can learn from, and we've also built an application just for you, that allows you to appraise and evaluate your deals, stack them side by side and track the key metrics that are most important to you. To find out more, head to theHMOroadmap.co.uk now and come and join our incredible community of HMO property investors.

Andy Graham (02:18.34)

Welcome back. You are of course in the right place if you're looking for that dose of inspiration, motivation, encouragement, enthusiasm, maybe that no-nonsense, no BS, keeping it real advice, guidance and support that you have come to rely on when it comes to growing your HMO property business or your property business per se. But today we've got some difficult stuff to talk about. We need to face the facts. There's some really tough stuff that as property investors, we need to contend with at the minute. And today I want to discuss that with you. I want to talk to you about those challenges and more importantly, how we should be thinking about this and what we should be doing. And the big question that I asked ourselves in the pre-intro intro is, is property investing still the right thing? Does it still make sense in 2025 and beyond?

And the reason I want to talk about this today is because you guys are asking me. My inbox has been filled with this over the last 10 days. Now, there's a reason why. It's because I have been posting some not necessarily political stuff, but some more opinionated content recently. And boy, has it resonated with you guys. Now, I, as a property investor and a business owner, I'm a little bit frustrated, to say the least, with a number of things at the minute. 

So, what I want to do to begin with today is sort of set the scene. Why is this conversation so important? Well, let's start there. Labour has undoubtedly inherited one of the toughest fiscal challenges in recent decades. The UK's debt is at record levels and because interest rates are so high, the cost of servicing that debt is also incredibly high too. Now the IMF, the credit rating agencies, the international investment community, they're all watching the UK very closely. We are a really important player on the global stage. 

And if Labour can't show a credible plan to balance the books and raise revenues, then the markets could punish the UK pretty quickly and pretty severely. Now, this could mean higher borrowing costs for the government, pressure on the pound, and potentially another round of inflation. And ultimately, these are the ingredients that push economies into recessions. Now, we've managed to dodge that so far over the last few years, but growth is...

Andy Graham (04:33.2)

pretty much flat at best at the minute. And there is a lot of concern. Now, Rachel Rees and her team have very little wiggle room to be quite frank. They can't just borrow their way out of the problems that we have and they don't want to make huge spending cuts because they'd be accused of breaking promises. It doesn't leave them with a huge amount. Leavers on tax is one of them. And that is why we're seeing so much rhetoric about tax changes at the minute. But my big issue is that there isn't much pro-growth here. 

I fully understand and can appreciate that we have to fill the hole. We're going to have to pay that and that is going to have to come from taxes. But it can't all be delivered through taxation. If we don't have some pro-growth policies, then we will stagnate. The economy will shrink. We will go into a recession. And that's the big concern. Now, a lot of the tax changes do seem to be pointed at the working class and property investors have again found themselves very much in the crosshairs. 

And this is really frustrating for you and I. And so we're going to talk about that today. Now, unfortunately, property is an easy target. It's visible, it's movable and politically it's just an easy grab. Landlords are generally speaking not a popular demographic. And that makes us a really easy target. And we're seeing it again. So let's start with the mood in the market.

The backdrop, unsurprisingly, investor confidence is low at the minute. Surveys are showing nearly three quarters of landlords are rating the outlook at five in 10 or worse. That is pretty dismal. We're coming out of a decade of what felt like almost guaranteed returns, not necessarily the best returns, but let's be honest, rents have gone up. We've made money in property. It has been pretty easy. Yes, there's been some periods of turbulence, some periods of instability, but generally speaking, it hasn't been that bad. 

But now we're coming out of that and we're seeing higher costs. We're seeing tougher rules. We're seeing a steady jumpy of new tax proposals. It's no wonder why so many investors are sitting on their hands rather than buying. And in fact, worse than that, so many investors are actually selling up. Now we've got to put this into context. There is a huge demographic of property owners who are of an age where it does make sense to sell. Everything goes through cycles.

Andy Graham (06:58.608)

Boom cycles, bust cycles, and we're in neither of those at the minute. This is a good time to sell if you have been in the market for a long time and you have made your money and your objective is no longer to take risk and try and create more, if it's actually to reduce your risk and actually take something off the table to spend. That is why it makes sense for so many people to sell at the minute. So take everything with a pinch of salt. Yes, a lot of landlords are leaving the market. No, it doesn't make as much sense for a lot of people as it used to do, but for a lot of people, it is the right time to sell. 

For a lot of people, myself included, it is not the right time to sell. I am at that point in my life where I want to expand, I want to grow, I want to build my capital base. I'm thinking 20, 30, 40 years ahead. Now, depending on where you are in the journey, you have to think about that as well. So put it all into context. It isn't necessarily right for all of us.

What we discuss or my approach or my attitude today or my plan isn't necessarily the right thing for you if you're at a very different point in that journey. So what are the drivers of the pessimism at the minute? Well, I want to list these out for you. One of the biggies at the minute is the autumn budget fears. There's a number of different ideas that have come forth. Now, what we often find is that there are some very intentional leaks to the press that the government will make to sort of test these ideas. One of these has been stamped duty.

There’s a lot of talk of reform, particularly higher charges on second homes and investment purchases. Now this directly hits transactional strategies and it slows portfolio growth, it slows the property market. We've seen this before. We've seen stamp duty changes come in and the market really slow down. Yes, there's a spike as everybody rushes to kind of get things done before that deadline. And then things typically slow down afterwards. 

And ultimately, the additional cost tends to come out in the wash. But that sentiment, that tax, it is an anti-growth policy. It doesn't encourage movement in the market. It actually starts to clog the market up. So my opinion is, again, that this is a very short-term tax grab. Yes, it will make them some money. It won't completely stall the market, but we do need to keep the market moving. We need to keep exchanging properties to buy, to sell. We need the investment market to keep moving.

Andy Graham (09:20.648)

The narrative around HMOs in particular, it's very interesting at the minute. For the first time in a long time, we have seen local authorities very much lean into HMOs because we have a bigger housing issue than ever before with the migrant issue. Now it's a very sensitive topic at the minute, but a lot of HMOs are being used, or at least the offer is there, to be used to house immigrants at higher rates. 

That is an attractive proposal for a lot of landlords. It's certainly not something I'm doing, but we are becoming even more aware of just how big the rental crisis is right now. So we need to keep the market moving. We need to keep buy to let landlords buying because if we don't, the rental crisis only gets worse. If people can't rent, they can't be transient. If people can't be transient, they can't move around for jobs. Mobility is so incredibly important in the UK right now and if that stops and that slows down because housing isn't available we've got a much, much, much bigger problem on our hands. 

Yes, we've got a housing crisis but we could have an employment crisis. That is a very real issue. National insurance, this is something else that's being mooted. National insurance on rental income. Now, first of all, it won't affect anyone who owns property in limited companies, which is myself, but I also own a lot of property in my personal name. It will affect landlords who own stuff in their personal name.

Will the amount be huge? No, it won't be huge. But it's another layer of tax on rental profits. Some landlords are paying tax on losses because of previous tax changes. So you can see that this type of a change, while only an incremental, a very small tax, in reality, the direct cost isn't huge. The sentiment is in the wrong direction again. And that sentiment, that pessimism is the big, big, big, big problem at the minute.

There are also suggestions of wealth and council tax reforms or constant rumours of new property taxes are banding. Council taxes is very much in the crosshairs at the minute. All of this creates uncertainty. Now, the autumn budget is still a little while away, but these discussions, this sentiment is enough to stall investment decisions. And that is why we are seeing landlords and investors sit on the hands at the minute. And that is detrimentally impacting the property market. When that happens, it almost becomes a self-fulfilling prophecy.

Andy Graham (11:42.167)

So this is really, really concerning. 

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Legislative and regulatory pressures. Let's just talk about some of other stuff that we're aware is going on. But I think when you start to bring this into the fold as well, the scale of the concerns really starts to make sense, it becomes visible. The renters reform bill, section 24. This is almost old news, section 21, no fault evictions are on the way out. Investors like you and I, we're worried about control, about tenant turnover, about the practicalities of repossessions. If you're a student landlord, this is even more concerning. Yes, there will be some grounds under section eight to serve notices, but the detail has yet to come out and this alongside these proposals and the autumn budget fears, it's all very, very concerning. There's no doubt whatsoever that there is a lot of legislative change to come about. 

More rights to tenants. It was meant to be a fairer environment for everybody. It's certainly not been the case. It's very much a tenant piece of legislation, tenant-favored piece of legislation. There's also some tightening of release proposed, exemptions on inhabitable properties. I posted about this the other day. There are a number of exemptions available on things like VAT.

For example, if you were to buy a property that could be legitimately classed as uninhabitable, there is a stamp duty exemption on that. They're looking at closing down on some of these releases. Now, of course, a number of people, they will have abused this. They will have claimed release where they haven't necessarily been warranted. But the fact that they are starting to close down on some of these releases is really important. Another good one at the minute.

Andy Graham (14:00.906)

And there isn't a suggestion that this might change and hopefully it doesn't, but unoccupied property, yeah, if it's been sat there unoccupied for two years, it will qualify for a 5 % VAT exemption. I imagine a lot of people right now only just realizing that. That is significant if you're going to do a refurbishment, big project, three, four, 500,000 pounds. The VAT on that is significant, nearly 100,000 pounds. That is all the difference in a deal like this. And when they start to propose changes like this that bring old properties or uninhabited properties back into use, when it encourages investors to come out, spend money to bring properties back to life. 

That is really, really concerning. Another biggie is EPC and standards. While the deadline does keep shifting for the new EPC standards, the cost of upgrading, if this is to come in, and the plan certainly is that this will come in, it is unimaginable. It would be physically impossible for a large number of landlords. And that's really, really, really concerning.

Let's talk about some financial headwinds. Interest rates, well, they're definitely off their peak. They're high. They're still high compared to what most landlords have been used to. And that's the important thing. A lot of people will counter-argue this. Well, interest rates were at 16% back in my day. Of course. But the climate now and the way that deals are stacked and the way that we have bought and with OPEX considerations, it doesn't work at 16%, it barely works at 6 % and that's really, really important. 

So that financial headwind is really, really important. It is wiping out high interest rates, is wiping out a lot of cashflow for those who bought on tight margins. Even those on good margins is making it very difficult for developers to exit deals at the end because of the stress testing. More of a concern with stand by to let flats than it is with HMOs, but it's a really, really big challenge because what that means is at the end of the deal,

If you get stress tests and it pushes the loan to value down, you've got to find or have a lot more capital left in the deal just to be able to exit. That makes it difficult and it makes developers question whether or not they want to get into the deals in the first place. When that happens, developers stop developing. What happens then? New homes target falls and you can see the spiralling problem. Lenders are super cautious at the minute with all of these kind of stress tests and all of the anxieties about

Andy Graham (16:23.55)

inflation and interest rates and legislative policies and the autumn budget. Again, it's very difficult for lenders to make decisions on whether or not they want to lend. So they are very much scrutinizing deals to the nth degree. They are underwriting everything within an inch of its life. That makes it slow, it makes it painful, and it makes it very expensive for investors like you and I. Let's just talk about market dynamics. 

The values are falling in parts of London and the Southeast and in other parts of the country. Not everywhere, but certainly in some parts of the country. Double digit declines in some areas and this is really, really concerning. Now, if we look at London in particular, London is a microclimate. It's been heavily impacted by the fact that a lot of people, international investors have left because of the tax changes, the nom-dom rules that the Labour brought in, which was meant to generate a lot of additional income, which is actually ended up in a lot of people leaving the country and not wanting to come to the UK. 

It's had the opposite effect, but ultimately it has pushed values in London down because that international market has started to really, really try up. We've also seen changes to things like visas, which has significantly impacted the student market. If you talk to investors and HMO landlords in areas like Bristol and other cities.

This year has been very different to last year and are a number of reasons why, but these are the sort of market dynamics that are changing that sort of thing. Transaction volumes, they are starting to collapse. There are fewer opportunities to recycle capital. There are fewer deals being bought, fewer deals being sold. Rents are rising a little bit, but not much in many cases and certainly now not fast enough to keep pace with the rising cost base. Maintenance, repairs, utilities, these costs and inflation, they are going up faster than rents are now.

Now, of course, rents have gone up quite quickly over the last few years. Let's not forget that. So I think we have benefited from that as landlords. It is important to take that context into consideration, but that is now starting to become imbalanced and it's something to be really aware of as an investor. So there's a lot to sort of digest there, but what does this mean? Where does it leave us? Well, the combination, I suppose, of government pressure, the desperation to create and generate revenue, but the policy uncertainty and

Andy Graham (18:42.172)

All the structural challenges in the property market means that sentiment is understandably very, very low right now. And I'm feeling that I'm hearing that an awful lot. And it's not just from investors. It's not just from our community members. It is also from agents. It is also from values. It is also from buyers and sellers. It's from everybody. Now at this moment, let's just take a second to pause because this all sounds pretty heavy, doesn't it?

Let's just take a step back and look at this pragmatically. The first thing to remember is that everybody is dealing with the same thing. And if anything, this levels the playing field. We know that there is a very intentional move to commercialize the private rental sector. We're seeing the banks move in, we're seeing the funds move in. This is no longer a hobby game. That has changed. We have been discussing that on the podcast for a few years now, and that is certainly the case.

The days of buying one or two buy-to-lets to make a few quid on the side have gone. It really isn't worth doing. But if you want to be a professional investor and build a professional portfolio with the right systems and processes and people, you have a huge advantage. We've all got the same struggles. We've all got the same challenges. We'll all pay the same tax. And yes, the goalposts will move a little bit, but we're not necessarily disadvantaged over anybody else. So as a business owner, that is the first thing that is really, really important to take on board. 

Now, second of all, none of this is new. We've been through tax hikes before, mortgage interest relief changes, stamp duty surcharges, licensing schemes, and every single time landlords have said that this is the end of property investing. Yet here we still are. My opinion is that if you adopt the changes faster than the average landlord, you will win. 

And in a similar vein, it's definitely worth making sure that you remember that when sentiment is low, opportunities are usually hiding in plain sight. Good deals that nobody wants to buy because they're so worried about what the autumn budget might be. Deals that you could buy that nobody else is buying because they're so worried about where interest rates are going to be. There are so many opportunities that come out of scenarios and situations like this. COVID was a fantastic example.

Andy Graham (21:03.24)

The blip with Liz Truss, that was another fantastic example. They were great buying opportunities, but you've to be aware of this and you've got to have that very long term view. Yes, short term, there could be a pinch. You're going to pay a bit more on your interest rates. Your bottom line net profit is probably going to be a bit squeezed. Now, if you believe that that's going to be the case for the next 20, 30 years, it's probably not worth you doing that. If you haven't got the resource or the risk profile to get into deals and handle that, then it's probably not for you. 

But if you believe that everything is transient and if you're a data-driven investor like I am, you can look back and you can see the ebbs and flows of the property market over many, many decades. And you need to be prepared for that and be able to ride that cycle. What this means is don't over-leverage, don't overstretch yourself. But if you can find the opportunities, they will be hiding in plain sight because this sentiment is so low because so many people are talking about the problems in the market and so many people are trying to get out of the market because of these problems that they see. 

Now, finally, let's not forget the fundamentals. People still need homes. Demand for good rental stock is as strong as it ever has been. Rents are still rising a little bit. Supply is still extremely limited and that doesn't change just because the budget tightens and reliefs here and there disappear. 

One way or another, the advantage of being an asset owner over the long term will pay dividend because there is only so much stock. We are an island and there are so many homes and there are so many people and it does, at the end of the day, boil down to some very simple maths. You do need to have a pragmatic attitude. You do need to be prepared to play the long game. You do need to be prepared to be a professional investor, I am the question is, are you prepared to do the same? 

So yes, sentiment is low right now, but for the investor who's smart, who's patient, who's pragmatic, my opinion is that this could be the time, the exact time and position that you set yourself up for the next big swing. Now, I don't want you to get too carried away and go overspend and do anything silly, but

Andy Graham (23:26.206)

I want you to take everything that you're reading, listening and thinking about with a pinch of salt. Yes, it's all really frustrating. Yes, tax changes and all of these targets on property investors is incredibly frustrating, but you've got to be able to see through it. You've got to be able to look at the longer term view if you want to be in this game. So let's wrap things up. Labour are under pressure. No doubt about it. They need to raise money fast and property investors are in the firing line.

Again, this explains the pessimism. There's a whole lot more going on that we've touched on today, but history tells us that those who adapt will survive. And often they don't just survive, they actually thrive. So my advice is don't bury your head in the sand. Don't panic, but stay sharp. Understand the changes, run your numbers. Be ready to act when others aren't. Don't overstretch yourself. Don't over-leverage. This isn't a time to do that.

In every tough market, there are opportunities for those who stay in the game, those who persist, those who really want to make it work. And I am certainly one of these people. Ask yourself whether you're one of those people, whether you're one of those investors as well. 

That is it for today's episode, guys. I told you it was an important episode and I hope, I really, really do hope that this hasn't put you off investing in HMOs, but it's important to have these honest conversations. I'm sure you've got a lot of questions about what we've been discussing in today's episode.

If you haven't already joined, come check out the HMO community. That's our free group on Facebook. It is a fantastic place to come and ask questions and discuss these points. There are some very interesting conversations happening about this stuff now, and there are a lot of different opinions about it as well, which is really, really interesting. Come and ask your questions. Come and offer your advice and guidance and experience as well. We have over 10,000 members in the community now, so it really is a fantastic place. It's not just me, so you can listen to investors from all over the country, all over the world, in fact with huge amounts of experience doing all sorts of different things. 

It's a great place to find that honest opinion that you might just need right now. And of course, if like me, you are taking it seriously, you do see the long-term value in being a property investor. You do think that HMOs offer the best returns in the property market, but you understand at the same time that you have to be a professional investor, then go and check out thehmorodmap.co.uk.

Andy Graham (25:48.777)

You'll find over 400 incredibly valuable resources saving you thousands of pounds, saving you hours, weeks and months of time, showing you the shortcuts, the tips, tricks, the hacks, all the downloadable templates that you need and all of the inspiration that you could possibly want and imagine from our community on projects that they have done successfully so that you can learn and do them too. Go and check it out. I promise you it is an absolute vault of gold.

If you're a HMO investor and you want to scale things up, then it is an absolute no-brainer. That's it, guys. Thank you for tuning in. And don't forget that I'll be right back here in the very same place next week. So please join me then for another installment of the HMO Podcast.