Buy-to-let landlords have faced a host of challenges over the past 18 months, from changes to Right to Rent and the uncertainty around the eviction process, to the end of the stamp duty holiday, not to mention a global pandemic.
Yet many of those who invest in the private rented sector remain optimistic about the buy-to-let market beyond 2021, with the proportion of confident landlords reaching its highest level for five years, according to research carried out on behalf of Paragon Bank.
This comes as the rental market remains stable; tenant demand is increasing as housing stock dwindles, and interest rates remain low for landlords looking to secure a buy-to-let mortgage.
Below, we take a look at the latest market trends and explore why landlords should be looking to expand their portfolio now and into next year.
Landlord sentiment remains positive
Business insight consultancy BVA BDRC recently asked landlords, on behalf of Paragon Bank, to rate their expectations for rental yields, their own lettings business, capital gains, the private rental sector in general, and the UK financial market.
The proportion who had a ‘good’ or ‘very good’ outlook for these measures exceeded levels seen in Q3 2016, with investor optimism consistently rising following the record low levels seen in Q1 2020 – the quarter when the pandemic first hit Britain.
The findings highlighted a link between optimism and portfolio size. Some 56% of landlords with 11 or more properties felt ‘good’ or ‘very good’ about the prospects for their own lettings business, compared to 46% amongst those with between one and 10 properties.
There was also a correlation between confidence and property purchase behaviour. A positive outlook was noted amongst almost two-thirds of those who have recently purchased a property, compared to just under half amongst all respondents.
What’s more, over three-quarters of landlords who plan to expand their lettings business in the next year are optimistic.
A favourable market for landlords
Despite the devastating impact of the pandemic and impending regulation set to hit the lettings sector in the form of rental reform, rental values have increased 1.6% year-on-year across the UK, according to Shawbrook Bank.
The research found that the private rented sector had grown to £1.4 trillion by the end of 2020, with buy-to-let properties increasing in value by 5.8% year-on-year.
With the number of available rental properties falling and tenants competing for bigger homes, it seems very likely that rental prices will continue to climb substantially over the next year.
What’s more, the Bank of England’s recent decision to hold the interest base rate at its historic low of 0.1% can enable mortgage holders to pay less on their monthly mortgage repayments.
Even if the rate does rise, its effect on the housing market is expected to be limited, and many mortgage holders will not face an increase in payments. You can find out more on buy-to-let mortgages from our experienced financial planning team here.
How can landlords get the most from their investment?
There are a number of ways landlords can continue to maximise their income and profitability from their rental property. This could include a rent rise – if this is fair, in line with market rents, realistic and agreed with tenants in advance – to reflect the fact the market is booming and that demand continues to outstrip supply by some distance.
Equally, landlords with bigger portfolios may want to consider incorporating – in other words, placing their rental properties in a limited company – for greater tax efficiency. Such a move has become increasingly popular since the phasing out of mortgage interest tax relief, although it does come with its possible downsides too. You can see some of the pros and cons to such an approach here.
Another potential option for landlords is to remortgage onto a better deal – at present, there are plenty of great deals on the market as lenders compete for business. Landlords may want to lock in a mortgage while interest rates remain held at historic lows – the vast majority of landlords have an interest-only buy-to-let mortgage, which means borrowers only pay interest on the loan each month before settling at the end of the mortgage length, so the current low-rate environment is a boon.
But it is unlikely to last forever, with fevered speculation that rates will rise again soon. This may force your hand to act now and lock in favourable deals.
Additionally, landlords should consider where they invest and the potential for strong yields and capital growth over time. Here at Oakfield Estate Agents, we operate in a number of the South Coast’s busiest and most thriving rental markets – including Eastbourne, Bexhill and Hastings – where demand from tenants is consistently high.
Given the pandemic, there has been a move by many away from busy, crowded cities to more peaceful and slow-paced locations by the sea, which still have plenty on offer to attract tenants – from pubs, restaurants and theatres to great independent shops, seaside walks and beautiful rolling countryside on the doorstep. Traditional seaside towns like Hastings and Eastbourne, which have reinvented themselves in recent years to appeal to modern audiences while keeping that sense of faded grandeur, tick all the boxes in that sense.
We will do all we can to help you let your home successfully, using our years of knowledge and experience.
For further information on how to manage the lettings, please get in touch with us today. You can also request a free instant online valuation to see how much your East Sussex property could be generating in rent each month or how much it could be worth on the current marketplace.