Running the rule over the latest BVA BDRC landlord research survey results, it is obvious to state we have something of a ‘mixed bag’ in terms of the landlord panels’ outlook for the coming 12 months, however there are remains a significant number of positives which should hopefully keep existing landlords invested and perhaps be a calling card for those who are considering a buy-to-let investment.
First up, and this is perhaps one of the more obvious points to make right now, is that landlords are still seeing a considerable amount of demand for properties.
This iteration of the quarterly survey revealed a 2% increase in net demand, driven by an increase in those landlords who ‘perceive demand to have increased significantly’ when compared to the last quarter of 2022.
It almost feels slightly odd to be talking about the end of 2022 because it does seem like a long time ago but it’s relevant to look at all quarters particularly over the last 12 months and track the progression, specifically in a market where the overall perception is that demand is strong and supply is weak.
As we also know, tenant demand is not a uniform construct, which is why we have landlords active in the East of England and the South West reporting strong demand, while net demand in Central London has seen a 7% decrease compared to the previous quarter.
Overall though, that perception of inadequate supply for the tenant demand that exists appears to remain the reality, which is why we are perhaps also seeing increased landlord confidence, especially amongst those who hold more than one or two properties, and again this is why they are looking at a much longer duration of activity within the private rental sector (PRS).
So, for example, landlord confidence metrics appear pretty strong in this quarter’s results. Confidence increased in rental yields, the UK financial market as a whole, and landlords’ own letting businesses, while confidence in capital gains and the PRS as a whole remained broadly stable.
Again, there is a notable split between landlords of larger portfolios compared to those with just a single property, with those who have 11-plus properties being the most optimistic and those with just one reporting the lowest levels.
That discernible split between these landlord groups appears to become more obvious and more pronounced with each iteration. We have long talked about the move to a more professional/portfolio landlord base and that appears to be the reality of the situation, becoming ever more pronounced as time goes by.
It is perhaps why we see, overall, landlords suggesting they will stay in the PRS for another nine and a half years, but if you narrow this down to those with just one property, 18% of those say they are likely to stay in the sector for only a year or less. Compare that with portfolio landlords owning between 11-19 properties where the number is between six and 10 years, while 33% of those with more than 20 properties say they’ll be here for another 20 years at least.
That long-term perspective and commitment shows there is likely to be a large number of portfolio players around for the foreseeable future, however it’s also clear that there is much more pressure – particularly financially – on those landlords who may well be considered ‘amateurs’. They are less likely to be sticking around and you could perhaps argue it is their number ‘moving out’ which has impacted on supply levels as a whole – hence the increases in rents.
We suspect that the increase in mortgage costs for these landlords with very low numbers of properties has been an ‘inciting incident’ over the course of the last eight or so months, however we do also have a much more stable buy-to-let mortgage market now, rates have come off highs, competition is pushing them down further, plus lenders like ourselves and our peer group are presenting a greater array of product and criteria options, to help landlord borrowers.
My view is that this gives us all a much brighter outlook and advisers should hopefully be starting to see an increase in buy-to-let purchase activity, even if at the same time, others might be looking for an exit strategy. These properties do have the potential to remain in PRS, and with house prices having slipped, acquisitive landlords might be sensing the opportunity. The good news is they have a strong mortgage market to choose from and will no doubt require the services of a quality adviser in order to access this.
Grant Hendry is director of sales at Foundation Home Loans