As tenant demand rises, landlord confidence increases with number planning to sell also falling, according to latest BVA BDRC research
Landlord confidence across a number of different metrics has improved over the course of the last quarter, with many anticipating continued increases in rental yield, a stronger performance from their own letting businesses, capital gains across the portfolio, and a better private rental sector (PRS) as a whole.
These results come from the latest Q3 2023 BVA BDRC Landlord Panel research report and show a landlord community responding positively to an increase in perceived tenant demand and potentially as a reaction to the Government’s September announcement not to take forward plans to introduce mandatory EPC levels at C and above for all PRS properties.
12% of landlords said the Government announcement meant they would be ‘able to stay in the UK rental market’, although the most cited response was that it would have ‘no/very little impact’ on their lettings businesses.
The research, comprised of 785 online interviews with landlords, was undertaken on behalf of Foundation Home Loans, the intermediary-only specialist lender, between September and October this year.
After five consecutive increases from Q2 2022, the number of landlords who said they were planning to divest some, or all, of their portfolio in the next 12 months, has dropped from 37% in Q2 to 28% in Q3.
While 8% of all landlords said they planned to increase the size of their portfolio over the next year, larger portfolio landlords said they would be more likely to purchase. 18% of landlords with over 20 properties said they would be adding to portfolios in the next 12 months.
Foundation said the fall in the number of those landlords planning to divest, coupled with larger portfolio landlords seeking to acquire, stemmed from a number of key factors, particularly perceived tenant demand.
71% of landlords surveyed reported an increase in tenant demand, up by 4% since the last quarter and reaching an all-time high. Only 3% of landlords reported a decrease in tenant demand.
The increase in tenant demand, coupled with ongoing supply of PRS properties, meant the proportion of landlords who had seen rising rents in the last year was up 5% on the last quarter’s results. Rental yield also increased quarter-on-quarter, up by 0.1% to 5.3%.
Landlords in the East Midlands reported the highest rental yields this quarter at 6.5%, while those in London (both outer and central) achieve the lowest yields, sitting below 5%. Landlords with the largest portfolios achieve the highest rental yields at 6.2% on average.
Foundation Home Loans offers a range of specialist buy-to-let mortgages available to individual and portfolio landlords, and those buying or remortgaging via limited companies.
Grant Hendry, Director of Sales at Foundation Home Loans, said:
“There are clearly a large number of factors for each individual landlord to take into account when looking at the performance of their own portfolio, and their optimism – or otherwise – for the future. However, it’s clearly good news to see a significant shift in positivity from landlords across a number of aspects, and to see confidence having risen quarter-on-quarter.
“Certainly, overall strong tenant demand is playing a major part here, as perhaps is the belief that mortgage rates may now have topped out, and that the market is finally shifting southwards, with more competitive rates meaning stronger affordability.
“The Government’s announcement on minimum EPC levels not moving up to C and above was perhaps a relief to many, particularly in the short-term, and for a number it may make the difference in terms of them staying invested in the sector.
“The number of landlords saying they plan to divest over the next 12 months has fallen, and this may partly be due to the retraction of the energy efficiency regulations for the PRS, but this should not detract from the need for rental properties to be as energy-efficient as possible, particularly in light of the increased utility bills all households have suffered in recent years.
“While it is too early to say whether we are seeing the start of a new trend line, there appear to be many more landlords feeling optimistic about their future within the PRS, and if this means landlords can keep much-needed housing supply available to tenants, then this can only be viewed as a positive.”
For more information on Foundation Home Loans, please visit: www.foundationforintermediaries.co.uk