YIELD AND TENANT DEMAND – TWO FUNDAMENTAL ELEMENTS IN ANY SUCCESSFUL PORTFOLIO

I’d like to drill down into some of the details which have emerged from Q1 2022 for landlords around yield and tenant demand – two fundamental elements in any successful portfolio.

Yield is an interesting one. It remains a balancing act for landlords who are looking to maximise the return of their investments whilst also factoring in rising living costs for their tenants who, like many homeowners, are feeling the pinch in the current economic climate. Yields will obviously differ when it comes to different property types, hence the current demand for holiday lets, short-term lets and HMOs. However, despite their growing popularity, the vast bulk of the BTL market continues to be dominated by the more ‘standard’ longer-term lets, a factor we have to consider when looking at general trends in rental yield.

WHAT ARE THE KEY BUY TO LET OPPORTUNITIES IN 2022?

We’re quickly heading towards that time of year when many people tend to have one eye on the past and one on the future. For landlords, 2021 has proved to be an opportunity-laden year and there’s plenty of optimism in the air to suggest that 2022 will see the private rental sector become an even more prominent focal point within the economy, the housing market, the mortgage industry and the intermediary community. 

One area already looking well ahead into the new year is the student community which – after a sustained period of uncertainty, remote studying and living far afield from campuses – has seen numbers return in their droves. A move which is bolstering rental demand in the larger, student-heavy areas which really suffered over the course of the pandemic. 

GREEN MORTGAGES SET TO PLAY VITAL ROLE IN THE FUTURE OF PROPERTY

In the last few weeks we have seen many world leaders, delegates and famous faces jet in and jet out, stay awake and fall asleep at the COP26 summit in Glasgow. The lasting impact remains to be seen but, if nothing else, it’s encouraging to see such widespread coverage of this event and the awareness being raised around the huge climate-related challenges which impact us all.

THE VALUE OF ADVICE IS ONLY INCREASING

It’s been said many, many times over many, many years but the value of financial advice will only continue to rise. Trust, perception and professionalism remain key elements within this process and, with this in mind, it was interesting to see YouGov’s analysis of the UK’s most recommended brands over the course of the pandemic year rank MoneySavingExpert.com as number one.

The consumer finance advice website was said to have had a string of strong endorsements from its customers and reaching the top spot was a testament to the depth of loyalty felt by its members. It topped brands such as John Lewis, Monzo, Brewdog and Starling Bank to achieve this coveted accolade.

DEMAND GATHERS PACE IN CITY RENTAL MARKETS

As lockdown restrictions continue to ease, more people are returning to their offices and regular – if still not daily for many – commutes are becoming more commonplace. As a result, activity appears to be on the rise in the more urban areas and we are starting to see city living become more appealing after something of a shift away from this during the pandemic.

Of course, this largely depends on a mix of individual outlooks, lifestyle choices, family, work and finances. What we do know is that the market did experience a demise in rental demand across the UK’s major cities in recent times. And this has raised some questions over people’s appetites for city living and landlords’ approaches to urban properties which have proved highly desirable in times gone by.

A POSITIVE OUTLOOK FOR THE SECOND HALF OF 2021

One of the reasons I love the mortgage and property markets is that it is never short of data, conjecture or opinion. I’m writing this on the cusp of the phased end to the Government's stamp duty holiday and we are seeing huge amounts of column inches around purchasers in a mad dash to complete, or risk having to pay up to £15,000 extra to secure their home. Of course, I’m paraphrasing from one such story, although there is little doubt that we are in midst of some hectic times.

It’s also a time when speculation is emerging about what might happen next to the housing market, and you don’t have to look too hard to find some slightly confusing information which only adds a further layer of uncertainty for consumers.

NEW BUY-TO-LET PROPERTIES DRIVING UP STANDARDS FOR THE SECTOR

I recently tried to source a carpenter for a relatively small project in the house. I don’t know one personally so I did the usual thing of asking friends and neighbours if they could recommend a good local one. I compiled a short list and contacted them (some more successfully than others). Again, as per the norm, I finally manged to get a couple around for a quote. This took a little bit of time but thankfully I’m not in any great hurry. And I was even more thankful of this fact when they told me that the earliest they could do the work ranged from September to November.

INVESTMENT IN THE PRS IS A WIN-WIN FOR TENANTS AND LANDLORDS

The renting versus house purchase debate is an age old one. Events over the past 12 months or so have helped clarify the property-related priorities of some but also served to further muddy the waters for others.

Although homeownership aspirations appear to remain strong, rising house prices and demand means that these continue to be a challenge for many. Research from Aldermore recently revealed that 38% of prospective first-time buyers said they were rejected for a mortgage once (compared to 36% in March 2020), and 43% said they were rejected for a mortgage more than once, a large spike from just 17% in March 2020.

GETTING TO KNOW YOUR CLIENT'S INVESTMENT ASPIRATIONS

Here at Dynamo we have many relationships with a variety of investors. From those who have been building their property portfolios for decades through to those who are taking their first steps onto the property ladder. Each have different short, medium and longer-term goals which will inevitably be affected by changes in circumstance, finances and future aspirations. As such, an integral role in this advice process is understanding the motivations behind these investments, the risks involved and potential exit strategies along the way.

The past year has taught us that scenarios and attitudes to money can change quickly and, from a landlord perspective, it’s important for advisers to really get to know their clients and understand where the new generation of landlords may emerge from.

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