Green shoots in Buy-to-Let
Written by Luke Stevenson
By Jason James, Corporate Account Manager at LendInvest
Noise around the Buy-to-Let market is at an all time high. Landlords are facing considerable challenges, with higher mortgage rates, forward planning for the Government’s revised Minimum Energy Efficiency Standards (MEES), and the Breathing Space Scheme, where landlords are unable to take steps to retrieve rental arrears accrued prior to registration.
Despite these challenges, green shoots are sprouting. Growth in rental demand and sales activity continue to shine a light on the environment today’s market provides.
The future of Buy-to-Let looks clear, growth in these areas provide an indirect prediction on what 2023 has in store for us.
This year, landlords will seek out expert advice on how to proceed with their property investments. And mortgage brokers alike, will be looking to find lenders with flexible criteria, and out of the box thinking.
How do we know all of this? Let me explain:
Growth in rental demand
The private rental sector in the UK has seen demand for rental property outstripping supply. In addition to the UK based demand for rental property, in 2021, the government discovered a gap in the UK workforce – high-skilled workers. In order to attract students, and other workers to the UK, they announced changes to the VISA application process and rules.
This influx of workers caused a ‘boom’ of rental demand, as the attracted individuals required a home.
Rental demand has been hot since the Summer of ‘21. However, the important note here is the rate of growth. According to Zoopla’s recent UK Rental Market Report, rental demand is 51% higher than the five-year average.
Landlords have enjoyed high rental demand for some time now, and will continue to enjoy the high demand for their rental properties, and this figure doesn’t seem to be slowing down, providing an area of opportunity for those looking to extend their Buy-to-Let portfolio.
Non-vanilla Buy-to-Lets
More rental demand means the need for more homes. In recent years, multi-unit freehold blocks (MUFBs) and houses of multiple occupancies (HMO) have been a popular choice for landlords who are looking to diversify their portfolio and meet the demand for increased housing.
We have experienced many landlords taking advantage of this and refurbishing their standard Buy-to-Lets into a HMO. Allowing more access to accommodation for students and young professionals.
As landlords proceed into the challenges of 2023 and beyond, an option that may come to mind is to diversify portfolios.
Unfortunately, due to the high risk associated with multiple tenancy agreements under one roof, finding a lender to approach the case with a hands on approach can be tough. That’s where we come in; with HMOs up to 15 bedrooms and Limited Company transactions.
Climbing rental yields
Rental yields are a vital figure for landlords – it simply determines the potential return of a property.
Let’s recap – In 2021, landlords enjoyed the Bank of England base rate low of 0.1%. Many of which remortgaged on a two-year deal, enjoying the high rental yields this era provided.
Until a few months ago, it was reported that landlords are struggling to make a positive return on their investments due to their higher mortgage payments, and low rent costs.
Despite mortgage interest rates being higher than they were two years ago, Zoopla’s recent UK Rental Market Report shows 11.1% annual rental inflation for new lets. A vital statistic to demonstrate how the increasing rates are filtering down to tenants. indicating rental yields for many landlords will return to a profitable figure.
We predict that the Buy-to-Let market will continue to show signs of stability in 2023 and longer term growth.
Rental yields will play a vital role in the popularity of Buy-to-Let over the next few years, and many will be watching this figure closely for both new and existing tenants.
For more information on who we are, why you should register for Buy-to-Let, please visit our website.