When it comes to pushing data into the marketplace, it can often be somewhat surprising at how it is taken and the different interpretations you will get from the same statistics.
Our regular Buy-to-Let Rental Barometer which looks at the quarterly rental yields, and their changes, compared to the year previously, is one such example, especially at a time when there appears to be a general bullishness about the prospects for buy-to-let, landlord activity and the private rental sector in 2021.
Albeit with the one caveat that no-one quite knows how the pandemic will progress and what it might ultimately mean for employment and incomes, especially when the gGovernment support starts to tail off.
However, 2020 presents us with enough data and examples of activity to give us a strong understanding of what might be driving the market forward. For instance, a lot has been made of the strength of demand in the owner-occcupier space as a result of the various lockdowns we have had, with the suggestion being that homeowners are now looking for different types of properties in different areas.
That is also holding true for tenants, in fact – and it’s an obvious point to make – the ability to move house, secure a new tenancy, etc, is much easier in the PRS and we’ve certainly begun to see landlords start to respond to this in terms of new additions to their portfolios which meet that greater need for outside space, for properties which may not be based in city centres or quite so close to commuting hubs, and the like.
It’s this activity which helps us to give a more rounded view of the overall marketplace, to be able to respond from a lending point of view, and to analyse where landlords might go next with their portfolios and how we meet that demand.
First up, I would suggest that from a rental yield point of view, landlords should be relatively happy about what has happened throughout the last 12 months. Of course, it’s been a tricky time for many – landlords have had to be flexible in terms of what some tenants are going through and their ongoing ability to pay, but the support has been there for many, payment holidays have been available, and where necessary, landlords are obviously inclined to support tenants in such situations.
Even with all of this going on, tenant demand has remained solid as the number of households increases, and landlords are securing the rental yields required in order to not just maintain their presence but add to portfolios.
While only two regions – East Midlands and the South West – within the UK posted rental yield increases in Q4 2020 compared to the same quarter in 2019, that does not (like some seem to believe) show underlying buy-to-let/PRS weakness. Far from it – indeed as mentioned many landlords will be happy to be securing 5%-plus rental yield, especially during a period when house prices have risen which has ultimately been the cause of these slight dips in yield.
Landlords who recognise the long-term nature of their investment will fully understand that there are two sides of the coin with property investment – rental yield and capital, but as can be clearly seen, for the most part they are securing good levels of both at the moment. And having achieved this, it often gives them the confidence to look at the refinancing options available in order to release funds to add more properties to their portfolios.
Certainly, portfolio landlords have been more inclined to buy. Our last quarter of 2020 shows 38% of purchasers were portfolio landlords, compared to 25% in 2019 and of course some of this will be down to the stamp duty holiday period, but we anticipate that this should continue throughout the rest of the year, particularly if price rises begin to stabilise and landlords sense there is a further buying opportunity as a result.
Our typical landlord client has eight properties in their portfolio, generating an average rental yield of 5.7%, and 67% of all purchases made in Q4 2020 were through limited company structures, underlining the increasingly professional nature of landlords and how they are utilising those means at their disposal in order to mitigate their tax situation in an efficient manner.
And of course, the finance situation is also strong. This is a highly competitive market with lenders like Fleet able to provide mortgages to the broadest range of landlords, particularly those who are looking for something more specialist in nature. Advisers will have their own understanding of the service differential between lenders at the moment, and in a marketplace where certainty and service delivery mean a great deal, that ability to get a deal understood, reviewed and offered on quickly is going to be crucial.
The latest data shows what opportunities lie for landlords in the buy-to-let market; it is up to advisers to secure that business and work with the right lenders in order to get those clients to completion as quickly as possible.
Bob Young is chief executive officer at Fleet Mortgages
