Though mortgage rates have risen significantly following the Bank of England’s base rate changes, this has not deterred professional landlords, who in many cases, are in a better position than other prospective buyers.  

Indeed, with house price growth slowing, professional investors with the capital available have been able to snap up good deals. The market has perhaps not been this favourable for a buyer since 2019.  

For those landlords who have focused on low-yielding rental properties, often those with one or two properties, the interest rate environment has made the market more challenging. However, there remains good opportunities for investment for those professional investors, with many expanding their portfolios at this time.   

 

Tenant demand 

In addition, tenant demand has remained strong.  

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The latest survey from Royal Institution of Chartered Surveyors (RICS) shows that tenant demand has continued to rise, whereas the fresh supply of rental property is going in the opposite direction. This misalignment continues to put pressure on the sector, and force rental prices up as a result.  

Data from the Office for National Statistics shows that the annual percentage change in rents has increased across all regions in 2022, including in London, and that in the 12 months to December 2022, rental prices for the UK (excluding London, which increased by four per cent) increased by 4.3 per cent, up from an increase of 4.2 per cent in November 2022, which is the strongest annual percentage change in London since November 2015.

Hometrack data, more focused on new lettings, reports a much higher 12.1 per cent annual increase in rents suggesting landlords are increasing rents more quickly when re-letting to a new tenant. 

Evidently, BTL continues to be a viable and attractive prospect for investors.  

 

Managing the interest rate rise 

Recent interest rate rises have thrown down further challenges in the market, with the latest Bank of England interest rate decision hiking the current rate up to four per cent.  

However, there are options for investors to consider which may help to combat rising interest rates, such as a property investment plan that incorporates House in Multiple Occupation (HMO) properties.  

While it is more of a complex investment plan, HMO can allow for higher yield, as more than one household contributes to the rental payments. The overall rental price for the property may be high, but it is likely cheaper for the tenants compared to renting a property themselves.  

This provides landlords with more room to increase rental payments to necessitate higher yield, whilst remaining more affordable for the tenant than their own private rental. It can also offer more protection against tenants falling into arrears or being unable to make rental payments. As renters continue to grapple with the cost of living crisis, it’s also likely that we’ll see fewer single lets and more HMOs over the course of the year. 

Lenders are also continuing to offer fixed rate BTL mortgages, which are a good way for BTL investors to mitigate the effects of rising interest rates and mortgage rates and allow some stability with yield rates and rental prices. The fixed rate mortgage market has settled since the disruption of October 2022 with rates now falling and more products now available with interest rates starting with a five. 

 

The rise of build to rent

Another promising factor is the rise of the build-to-rent (BTR) model which is becoming increasingly popular. BTR developments are new residential properties which are built solely for renters.  

Data from the British Property Federation and Savills shows that by 2032, eight per cent of UK rental homes will be purpose-built compared to 1.5 per cent in October 2022 when the research was released. 

Not only does this increase opportunity for investors, it also provides more peace of mind as investors take on a modern new build with lower running costs, rather than having to face significant refurbishment on older properties. 

It also means more properties will be available with better EPC ratings, which is key for both landlords and tenants ahead of the proposed regulation changes. From 2025, under the current proposals all newly rented properties will be required to have an EPC rating of C or above.

Existing tenancies will have until 2028 to comply with the new rule changes. Properties with better EPC ratings will be more efficient and cost less to run, which will be key for tenants in the current cost of living crisis. 

Though the property landscape still faces pressures and challenges from a turbulent economy and the impact this has on consumers, it’s clear that opportunity still remains in the BTL market, with lenders still offering competitive rates and products to support the market.

Brokers can assist landlords with their plans by supporting them with their investment plan and ensuring that the best rates are identified, and by being on hand to offer advice and guidance to landlords throughout their partnership.