As a landlord myself, I fully appreciate that there are always a huge number of considerations to take into account for all types of investment properties, even in the most favourable lending and economic conditions. The reality is that landlords are not currently operating in optimum conditions. Some tenants are struggling to fulfil their rental obligations due to the burdens being placed on them from high energy costs and inflationary pressure which are causing general living costs to rise.
Additional factors such as the cost of funding have also risen substantially over the second half of 2022 and into 2023. On a more encouraging note, we are now seeing rates steadily fall but rental calculations remain an issue for those landlords at the higher end of the loan-to-value scale, although some lenders are now looking to combat this with reduced rates and higher arrangements fees.
Looking at the present buy-to-let market through a wider lens, it’s evident that many fundamentals remain in place as landlord investors continue to benefit from high levels of tenant demand, steady rental yields and falling rental voids.
This was highlighted in a Q4 2022 BVA BDRC Landlord Panel research report – undertaken on behalf of Foundation Home Loans – which revealed that rental yields held firm at the tail-end of 2022, softening by just 0.1% to an average of 5.7% across the country, with rental properties in Wales securing the strongest yield figures of 6.4%. HMO properties went back to the top spot to offer the strongest yield by property type, at 6.4% for the quarter, followed by multi-unit blocks (MUBs) at 6.2%.
Landlords’ perception of tenant demand remained stable in the last quarter, with net demand holding firm at 65%. Regionally, Central London landlords reported the highest strength of current tenant demand. However, demand appears to have fallen, on a net basis, across a number of regions including the North West, West Midlands, South East, and Outer London.
There was also good news in terms of rental void periods – the incidence of voids reported by landlords fell to a historic low with only one in four landlords reporting a property without tenants in the preceding three months. Also, the typical void period fell by an average of 12 days to 70, suggesting it was easier for landlords to fill properties than at any point in the last six years.
These are all prominent areas which will invariably be included in most due diligence reports around any property investment or portfolio evaluation, and this combination certainly bodes well for landlords in a year which is likely to present as many opportunities as it does challenges.
In light of these additional pressures, it’s clear that the BTL market is becoming ever more multi-faceted, especially from a funding perspective. Thankfully, a growing number of products are emerging with many specialist lenders leading the way from a rate and service standpoint to deliver the solutions which can help landlords better navigate some increasingly complex market and economic conditions. Let’s hope that these positive trends continue.
