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Why over 40% of landlords want to expand their property portfolios

by Alysha Taylor SmithPosted on

The property market has seen its fair share of challenges in recent times, from rising bills to a constant stream of government regulations. Landlords have had to navigate more economic uncertainties than they are used to. However, despite the challenges, a surprising number of landlords are feeling positive about the future and are even looking to expand their property portfolios.

According to a study conducted by lending service Landbay, over 40% of landlords have expressed their intention to grow their portfolios in the coming year. So, why are landlords considering expanding their property portfolios in 2023? 

Rising Utility Costs

Fluctuating temperatures contribute towards higher utility costs and tenants may rely more on electricity to cool or heat their living spaces, leading to increased utility costs for landlords and tenants alike. Higher temperatures can result in increased water usage, further burdening the electrical grid and city resources, thereby escalating costs. Landlords offering bills included should carefully consider the monthly charge to make sure that it covers expected usage. 

High Tenant Demand:

One of the key driving forces behind landlords’ willingness to expand is the sustained high demand for rental properties. As the number of potential tenants continues to exceed the available properties, occupancy rates remain high. A recent survey by RICS reported a 32% increase in tenant demand in just one month. This surge in demand has also reduced the average void period in England from 23 days to 17 days in February.

Potential Drop in House Prices:

Another reason contributing to landlords’ positive outlook is the possibility of a drop in house prices. Approximately one-third of respondents in the study cited this as a factor influencing their decision to expand their portfolios. Declining house prices may present an opportunity for savvy investors to acquire attractively valued properties, anticipating future price surges.

Opportunity for Higher Rental Yields:

While the property market may have been less lucrative than other investment avenues in recent years, there remains a silver lining for landlords. The opportunity to leverage properties using mortgages can substantially boost returns. As mortgage rates begin to stabilise and inflation eases, landlords can consider tracker mortgages with falling monthly interest repayments, supporting higher rental yields.

Lower market competition:

The private rental sector has witnessed a significant decline in available rental properties, with around 70,000 landlords leaving the market in 2022 alone. However, landlords who have weathered the challenges are presented with better opportunities to differentiate their properties and secure higher rents.

Rising Rents:

Rent prices have been increasing at their fastest rate in seven years, rising by 4% in 2022. This trend is expected to continue in 2023, with forecasts suggesting rents may rise by as much as 12.91% this year. The combination of rising rents and declining house prices may recalibrate rental yields to more attractive levels, encouraging landlords to remain in the market.

Amidst the uncertainties, some landlords see a window of opportunity to capitalise on the market conditions. Faltering house prices, coupled with rising rents, might offer attractive investment opportunities that confident landlords can seize.

While there are positive indications, not all landlords share the same optimism. Approximately 35% of landlords expressed a more neutral stance, citing concerns over government interference, negative stereotypes surrounding landlords, and overall market uncertainty. 

Despite this, a considerable proportion of landlords remain optimistic about the future and are eager to expand their property portfolios. High tenant demand, the potential for declining house prices, and rising rents are among the key factors fueling this positivity. While uncertainties persist, landlords who approach the market with confidence and strategic thinking may find themselves well-positioned for success in the coming years.

How the weather is affecting your rentals

by Alysha Taylor SmithPosted on

In recent years, the impact of climate change has become increasingly apparent causing unfamiliar weather events across the world, including the UK. With the unpredictability of summer weather changing between heatwaves and large downpours of rain, how can landlords ensure they are prepared?

Rising Utility Costs

Fluctuating temperatures contribute towards higher utility costs and tenants may rely more on electricity to cool or heat their living spaces, leading to increased utility costs for landlords and tenants alike. Higher temperatures can result in increased water usage, further burdening the electrical grid and city resources, thereby escalating costs. Landlords offering bills included should carefully consider the monthly charge to make sure that it covers expected usage. 

Coastal Risks

Coastal towns are particularly vulnerable to weather impact, such as flooding and rising sea levels. The structural integrity of properties in these areas is at risk, and the demand for property insurance increases alongside repair bills. Landlords letting properties near the coast, particularly in areas with rougher seas (for example, Cornwall) should seriously consider implementing measures to protect their properties in the case of flooding – Or even consider moving to inland investments.

Property Damage and Market Appeal

Weather-related property damage can significantly impact a landlord’s bottom line. Continuous exposure to weather-related calamities can make properties located in high-risk areas less attractive to potential tenants. Renters are increasingly considering the risks associated with extreme weather events, making properties in these locations less desirable. Consequently, selling properties in such areas may lead to reduced profits or even losses, as real estate prices tend to drop in climate-impacted regions. It may be a good idea to look forward to the future and aim to predict which areas are likely to suffer from weather damage in the long-run to adjust your property investment strategy for better long-term success.

Changing weather patterns caused by climate change pose significant challenges for landlords in the UK. Being proactive and implementing climate-resilient measures can help landlords protect their rental properties from potential damages and maintain their market appeal. Constructing energy-efficient buildings, reducing energy consumption, and embracing sustainable practices are crucial steps in mitigating the impacts of changing weather on rental properties. By adapting to these challenges, landlords can safeguard their investments and contribute to a more sustainable future.

Reasons for new landlords to join the buy-to-let market

by Alysha Taylor SmithPosted on

The rental market is experiencing continued demand, with indications pointing to this trend continuing in the long term. With lower numbers of rental properties than potential renters on the market, the rental market is set to become even more competitive causing difficulties for young renters looking for suitable accommodation.

What do landlords have to gain from the current rental supply imbalance? 

Reduced Vacancy Periods

With a higher demand for rental properties, landlords can enjoy shorter vacancy periods. Properties are more likely to be rented out sooner, minimising the time properties remain unoccupied. This ensures a steady stream of rental income and mitigates the financial strain associated with prolonged vacancies.

Selective Tenant Screening

The growing demand for rental properties allows landlords to be more discerning in their tenant selection process. Landlords can carefully screen potential tenants, choosing those with excellent rental histories, stable incomes, and responsible behaviour. By selecting reliable tenants, landlords can minimise the risks associated with property damage and unpaid rent, ensuring a smoother and more profitable rental experience.

Increased Rental Prices

The competitive rental market resulting from rising demand empowers landlords to charge higher rental prices. As demand surpasses supply, landlords gain leverage to adjust rental rates to match market conditions. Higher rental prices enable landlords to maximise their return on investment and boost their profit margins, leading to increased financial stability and growth.

Expanded Profit Margins

The combination of shorter vacancy periods and higher rental prices contributes to expanded profit margins for landlords. By reducing the time a property remains unoccupied and optimising rental rates, landlords can achieve a more favourable return on their investment. These improved profit margins create opportunities for further property investment, property maintenance, and enhancement of rental offerings.

The increasing rental demand in the market has a positive impact on landlords in various ways. Landlords benefit from shorter vacancy periods, enabling them to generate consistent rental income. They can also be more selective with tenants, reducing the likelihood of property damage and rent arrears. Additionally, the competitive market allows landlords to charge higher rental prices, leading to improved profit margins. With careful management and adaptation to market trends, landlords can thrive in the evolving rental landscape. Additionally, as more landlords enter the market the supply and demand crisis will inevitably level out, causing positive knock-on effects for tenants. 

EPC regulations to be delayed until 2025

by Sorcha DugmorePosted on

Technical difficulties in the UK government’s Energy Performance Certificate (EPC) database have led to a delay in implementing new regulations for landlords in England. As a result, Landlords will not be required to make certain energy-efficient improvements to their rental properties until 2025 at the earliest. 

Why are EPC regulations becoming stricter? 

According to a recent survey, 90% of tenants believe that energy-efficient homes are essential, and 82% would be willing to pay higher rent for such properties. Additionally, poorly insulated and inefficient properties can lead to 21% higher energy bills, on average, for tenants. Furthermore, the carbon footprint of a typical rental property is 19% higher than that of an owner-occupied home.

Despite the delay in new EPC regulations, Landlords should take steps to improve the energy efficiency of their rental properties as soon as possible. Making energy-efficient upgrades can save an average of £350 a year on energy bills, and upgrading from an EPC rating of D or E to an A or B can add an average of £16,000 to a property’s value.

The most common ways to improve a property’s EPC rating include:

  • Adding (or improving) loft and wall insulation
  • Replacing older boilers for more sustainable alternatives. (This may also save you from costly boiler repairs). 
  • Installing solar panels or alternative methods of creating sustainable energy within the rental homes. 
  • Ensure that glass in your properties is double glazed to improve energy efficiency. 

It is vital to note that the delay in implementing new EPC regulations is a significant setback in the UK’s efforts to achieve its goal of net-zero emissions by 2050. However, Landlords can still make a significant impact by taking action to improve the energy efficiency of their properties. By doing so, they can not only save money and increase the value of their property but also improve the quality of life for their tenants.

How to guarantee rental payments as cost of living increases

by Sorcha DugmorePosted on

Cost of living prices in the UK have been steadily increasing over recent years, having serious consequences for renters. A study in August 2022 revealed that food prices had risen by 12.5% compared to one year earlier. Additionally, rising gas and electric prices are putting huge strains on renters across the UK trying to keep up with the rising prices without compromising on their quality of living. 

Many renters are now facing difficulties being able to pay their monthly rent, due to no fault of their own. Long-term renters chose rental properties which fitted their budgets given the average cost of living prices at the time of entering their rental contract. However, renters who have been in their property for 2+ years are now finding their financial circumstances drastically changed, despite having stayed in the same property. 

Whilst a lot of renters have developed plans to cope with the rising costs, the significant increase in cost of living is inevitably causing serious problems for some renters, with knock-on consequences for landlords as tenants struggle to pay rent each month. 

What can landlords do to guarantee rental payments? 

When entering into new rental contracts, landlords should now pay more attention than ever to the average cost-of-living in the local area, and account for this when bringing in new tenants. Ensuring that your potential new tenants can provide proof of yearly income 30 times the rental cost will create a safety-net which should guarantee timely rental payments each month, whilst leaving space for cost of living prices to increase further throughout the next year. 

In addition to this, the most effective way to ensure timely rental payments is to enter into a “Rent Guarantee Scheme”. For a small monthly payment, this insurance will guarantee rental payments when a tenant does not pay their rent within 10 days of it being due – meaning that landlords will receive the rental payments each month even when their tenant is unable to pay. 

In summary, the cost of living crisis in the UK continues to cause serious challenges for both tenants and landlords. However, by developing an informed plan, landlords can limit the impact these challenges have on their monthly profits and gain more security with their investments.

Time to invest in rental properties?

by Sorcha DugmorePosted on

New investment into private buy-to-let properties is stagnating, whilst tenant demand for rentals is increasing; it’s no surprise that the UK is facing a serious rental crisis. Increased competition for rentals across the country is driving rental prices higher each month – But private landlords still seem hesitant to expand their rental portfolios. 

Why are landlords selling up? 

Going back a couple of years, the pandemic created a huge sellers market across the UK. This, teamed with Rishi Sunak’s stamp duty holiday, created a “selling fever” as many private landlords jumped at the opportunity to sell-up. 

This loss of private landlords has been intensified in the last year by a decrease in new landlords wanting to invest in buy-to-let properties. While the current rental crisis will be a contributing factor as private landlords wait for a more stable economy, there are likely additional factors at play which make this investment seem less appealing. One concern for new landlords will be the costly eco upgrades they will be required to make to properties by 2030. 

Why should landlords invest in Buy-to-let now? 

With the above in mind, landlords will likely be concerned about stepping into new buy-to-let investments, but with the right plan 2023 might be the perfect time to invest. 

Historically, the best time to make an investment is when the property landscape looks bleak. Currently, buying competition is low and house prices continue to plummet across the country. In December 2022, the average UK house price dropped for the third month in a row by 1.5%, creating interesting affordable investment opportunities. 

With increasing rental demand landlords will be able to charge higher rental prices, driving up yields for properties which were bought for lower prices. 

Landlords who are still considering selling-up should consider selling their more expensive properties in the South in trade of new affordable investments in the North. Rental yields are increasing rapidly around cities such as Birmingham and Manchester, now could be the perfect time to capture these opportunities whilst property prices are still low. 

Whilst no investment is risk-free, a property investment strategy tailored for the current market can still yield very profitable results. There will be some short-term hurdles which come with investing during a rental crisis but the right investments should lay a strong foundation for a lucrative long-term investment.

Call for evidence on the impact of short-term lets

by Sorcha DugmorePosted on

The government has released a call for evidence to evaluate the impact of short-term lets on the housing market with the view to implement more effective regulations. 

Housing supply challenges are leading to mass shifts in quality of living – with young adults unable to leave their family homes, household overcrowding, unstable living circumstances and even an increase in homelessness.

How should this crisis be addressed? 

The most powerful way to address this crisis is to build more affordable homes across the country. The UK government has stated targets for this, but are falling behind on their plans to build new properties.  

Another factor in this crisis is unused homes, with an increasing number of properties being used primarily as a holiday home or other short-term let. Short-term lets are often criticised for having a big impact on the private rental sector, contributing to a significant lack of suitable housing for locals.

How big is the problem? 

  • Research from the BBC indicated that the total number of holiday lets across the country has risen by 40% since 2018.
  • Propertymark estimated in 2020 that 46,000 properties have already been made unavailable for local people looking for a home due to private landlords changing from long-term to short lets and one in 10 landlords would consider switching to short lets, under the current regulatory framework.

The correlation between increasing short-term lets and housing supply problems in the UK is hard to ignore. There is now pressure on the Government to take action to apply stronger controls to short-term lets to ensure a better balance between housing supply and the potential economic benefits from holiday makers. 

Government plans for 2023

The UK Government has released a call for evidence to develop a registration scheme in England for tourist accommodation with the aim of collecting data on the market to better understand the impact of short-term lets. 

The  review will look to address potential solutions for the key challenges caused by increasing short-term lets – particularly localised to areas where these issues are intensified by larger numbers of holiday makers. 

It will consider the growth of the short-term letting market, benefits of short-term lets and the potential impact of new policy suggestions. Additional consideration should be given to localised effects of the policies to account for the county variation in holiday let oversaturation.

It may be difficult for the UK government to balance the need to provide long-term homes with the economic benefits of holiday rentals, particularly considering the ever-growing need to boost the UK economy and move out of the cost of living crisis. 

We hope that the call to evidence will pave the way for balanced and data-driven initiatives which can benefit both the private rental sector and short-term letting agents.

Blackouts

by Sorcha DugmorePosted on

Blackout warnings have been issued by the National Grid, with planned nationwide blackouts expected to affect the UK in the coming winter months.

The Chief Executive of the National Grid, John Pettigrew, has warned that the blackouts are likely to take place during “very cold winter weekdays” between 4pm and 7pm and are a consequence of Russia’s war in Ukraine. 

How should Landlords respond? 

Unexpected blackouts could cause uncertainty and stress amongst tenants, particularly if they do not receive information on the length and frequency of the blackouts. However, when properly prepared, blackouts can be dealt with and both landlords and tenants can avoid major inconvenience. 

To make the circumstances as manageable as possible, landlords should take responsibility for properly informing their tenants of the expected upcoming blackouts, and provide useful information on how to prepare. 

Tips on how to prepare for the upcoming blackouts: 

  • Landlords should provide their tenants with updated information on the expected blackouts, including expected times and frequency (where possible).
  • Tenants should be advised to locate external batteries available for important devices (phones, laptops etc) ahead of the blackouts.
  • Tenants should keep a working torch in an easy to find location in their home.
  • Landlords should also consider the additional impact the blackouts may have on tenants who have young children, particularly around mealtimes. Reminding tenants that the expected blackouts may interfere with mealtimes will allow tenants to make alternative plans (such as pre-preparing non-cook meal options, or using a camping stove (for tenants who have a safe outdoor space).
  • To avoid panic, tenants can also be reassured that blackouts which only last for a few hours shouldn’t cause any major food safety issues for food kept inside the fridge or freezer. As long as the doors remain closed during the blackout, the fridge and freezer should remain at a cold enough temperature that the tenant’s food quality is not compromised.
  • Finally, due to the blackouts taking place during cold winter evenings, landlords can remind tenants to have alternative means of keeping warm available in the case that the temperature in their home drops significantly during the blackout. (Such as extra blankets and warm clothing). 

If tenants are well-informed of the upcoming blackouts and receive guidance on how to prepare, these planned blackouts shouldn’t cause any major inconveniences for either landlords or tenants. However, we advise following related news stories as more information is released in regards to the planned times and frequencies of these blackouts. 

Housing supply targets

by Sorcha DugmorePosted on

The UK is facing an urgent need for new and affordable housing across the country caused by an increasing population and lack of new builds. 

Housing supply issues have a significant effect on quality of living for renters, and potential renters, across the country. Lack of suitable housing can lead to: 

  • Overcrowding in houses as people work together to save costs 
  • Unstable living circumstances caused by increasing numbers of landlords selling up, or not being able to secure long-term rentals 
  • Increase in homelessness 
  • Impaired labour mobility 

According to research by the National Housing Federation, to minimise this crisis the UK must build an estimated 340,000 per year, with 145,000 fitting into the affordable housing category.

Additionally, it comes as no surprise that the supply challenges are creating a competitive housing landscape, raising prices and making it increasingly difficult for first time buyers to enter the market.  In August 2012, the average house price in England was £180,000, since then, house prices have increased by an astonishing 76%. 

As part of the Renters Reform white paper, the UK government pledged to build 300,000 new houses per year to work towards this goal.

Housing targets scrapped

Nearly 60 conservative rebels pledged to back-up plans to ban mandatory housing targets. Rishi Sunak has responded to this by easing measures and setting them as “advisory” instead of mandatory. 

In response to the surprising shift, Michael Gove stated “there is no truly objective way of calculating how many new homes are needed in an area” but the “plan-making process for housing has to start with a number”. 

Looking back to when Rishi became Prime Minister in October, there were already doubts surrounding these housing targets. In October (2022) statements, Rishi had claimed that he “did not believe in arbitrary, top-down numbers”. Whilst committed to building more suitable homes across the country the new Prime Minister doubted the achievability and accuracy of the targets.

The conservative rebels took issue with the effects the targets might have on specific constituencies, with concerns of over-building in more rural areas. The government has claimed that they will now consult on how the new guidelines can take local density into account. 

Whilst housing targets of 300,000 new homes per year will be advisory and not mandatory, the Government has stated their commitment to plan high numbers of new builds across the country. Additionally, new measures are being put in place to better control the short-term letting market in the hopes that this can create opportunities for higher numbers of suitable residential homes.