THE CONTINUED RISE OF THE PRS

The summer of 2022 could well be a pivotal one for the housing market and the private rented sector as rising living costs continue to impact a range of personal financial scenarios, affordability, savings pots and homeownership aspirations.

With house prices experiencing sustained highs, the pressure on potential first-time buyers is mounting and big decisions need to be made over whether homeownership might be an option or if a longer-term rental arrangement may be more preferable from a lifestyle and flexibility perspective.

PROPERTY MAINTENANCE, OUTGOINGS AND THE IMPORTANCE OF THE ADVICE PROCESS

As the rise in the cost of living is testing all our financial capabilities, this is certainly no different for landlords who have many different forms of outgoings and costs to calculate relating to their property investments. Maintenance has long been one of the major considerations for landlords from a time and cost standpoint and with the price of labour and materials rising, even greater scrutiny is being placed on even the smallest of jobs.

A CAPITAL RENTAL RESURGENCE?

There are always a number of considerations for landlords, new and old, to take into account when starting, adding to or diversifying their portfolios, especially when it comes to location. The capital has long been a hotbed of BTL activity due to the strong potential yields on offer and the ease in which to let properties. However, with the pandemic impacting the attraction of city living for a variety of reasons, the high-profile London rental market has inevitably suffered over the past couple of years. Although, positive signs are now emerging around a resurgence.

THE CURRENT STATE OF THE BUY TO LET MARKET

When evaluating the current BTL market and the additional pressure being placed on people’s outgoings as the cost of living crisis sweeps the UK, there is only one place to start, rent. According to the latest market analysis from HomeLet, the average rent in the UK reached another record high of £1,078 in March, up 0.8% on the previous month. The data showed that when London is excluded, average UK rents stood at £910 – a rise of 0.9% against last month– with all regions across the UK witnessing an uplift in annual variance.

Average rents in the capital are reported to have risen again to an average of £1,770 pcm – an increase of 0.7% on last month’s figures. However, the largest monthly variance was seen in the South West which was up 1.8% to an average of £1,017 pcm. Scotland saw the largest annual variance at 12.9%, pushing the average rent in Scotland up to £770.

MATURITIES AND THE BTL REMORTGAGE MARKET

Coming off the back of a period where the purchase market – from a residential and buy-to-let perspective – made up a vast percentage of intermediary business, advisers are having to refocus somewhat as activity levels are shifting more towards the remortgage market as vast numbers of product terms are expiring across the industry.

This is especially apparent in the BTL sector which is being driven by considerable numbers of five-year fixed rate deals maturing over the course of the year and the ball really is in the court of proactive advisers to make the most of these remortgage opportunities in what remains a highly competitive lending space and an uncertain interest rate environment.

This is evident in a recent webinar poll from CHL Mortgages which outlined that 70% of portfolio landlords expect to remortgage or consolidate loans over the next 12 months.

A D-RATED OPPORTUNITY?

The allure of incentivised lending for properties with higher Energy Performance Certificate (EPC) ratings is certainly escalating. Alongside growing residential awareness, interest and action is also increasing within the landlord community, especially on the back of upcoming legislative changes. This has been said many times but – in light of some upcoming findings – it certainly does no harm to reiterate that, from 2025, all newly rented properties will be required to have an EPC rating of C or above. Currently, properties only require an EPC rating of E or above. Existing tenancies will have until 2028 to comply with the new rule changes.

So what about those BTL properties with a rating of D and below?

BRIDGING THE RENTAL STOCK SUPPLY GAP

According to government figures, the supply of private rented housing in England has fallen by almost 260,000 over the past five years. A new report by Capital Economics warns that, without further action, the deficit could begin to snowball. The report, commissioned by the National Residential Landlords Association, observes that Government targets would amount to the need for 340,000 new homes a year across the UK by the middle of the decade.

Given that renting privately is the first tenure for nearly all young people, demand is only set to increase as the 15–24 age-bracket is forecast to grow by 866,000 (11%) between now and 2030. Modelling by Capital Economics suggests that without changes in tax or other policies, the private rented sector stock will decrease by a further 540,000 properties over the next ten years.

RIDING THE STAYCATION WAVE

With international travel restrictions still hampering the plans of many Brits, and the appeal of holidays and short breaks across the UK still very much in vogue, this is a trend which has certainly not escaped the attention of landlords from Land’s End to John o’ Groats.

The rise of the short-term let and holiday let markets has created some appealing opportunities for landlords to generate stronger yields as the ‘staycation’ boom continues to generate heightened demand.

Recent analysis from Moneyfacts shows that there are now 231 buy-to-let mortgages eligible for holiday lets, a 25% increase in the number of available deals available since September 2021. Looking further back, in August 2020, there were just 74 similar deals available.

2021 SEES RECORD NUMBER OF COMPANIES SET UP TO HOLD BUY-TO-LET PROPERTY

Analysis of Company House data from Hamptons showed that there were a total of 47,400 new buy-to-let companies incorporated in 2021 across the UK. This is reported to be almost double the number that were set up in 2017, when it was announced that investors with properties in their personal names would no longer be able to claim mortgage interest as an expense. While the number of buy-to-let companies up and running in the UK passed through the 200,000 mark as the country emerged from the first lockdown, by 2021 this figure has risen to a new total of 269,300.

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