According to the report ‘Unlocking value: The role of refurbishment in buy to let’ by InterBay Commercial, the proportion of homes in the PRS in England deemed non-decent by the Office of National Statistics (ONS) has fallen for 10 consecutive years, decreasing to 24.5 per cent from 44 per cent in 2008, and closing in on the level seen among owner-occupied stock (18.7 per cent).
Despite the sector growing by 45 per cent over the period with the addition of 1.5m homes, the number of subpar homes has fallen in absolute terms too; down by 275,000.
Further to this, the latest English Housing Survey showed 84 per cent of private renters were satisfied with their current accommodation.
Landlords’ commitment to refurbishing to improve properties has led to this as the survey of 720 property investors, conducted for InterBay by research firm Savanta, showed 70 per cent of landlords who recently undertook a refurbishment did so to better the property.
Meanwhile, 45 per cent of landlords cited increasing a property’s capital or yield as their reasons to refurbish.
InterBay’s analysis indicated landlords typically spent £12,000 per refurbishment.
Substantial works such as conversion and extensions on average stood at £40,000, compared to just £7,000 on a light refurbishment such as modernisation or redecoration.
Many landlords took a ‘little and often’ approach to refurbishments, while a minority sought more significant and costly works to add value or convert a property.
Just 18 per cent of those who had recently refurbished a property had undertaken a heavy refurbishment, and of these, nearly two-thirds undertook the works to add value to the property.
Overall, 28 per cent of landlords spent less than £5,000 on their last refurbishment, and 43 per cent spent less than £10,000. At the other end of the scale, just 13 per cent spent more than £100,000.
Return on investments
Some 74 per cent of those who undertook a refurbishment said it enhanced the property’s value, and 82 per cent saw monthly rents rise. The average rent for a refurbished property rose by £81 per month, up by eight per cent.
Even after accounting for the 16 per cent who did not see the value of their property rise as work was done to render the properties rentable, the analysis showed that developments on average added £13,000 to a house’s value.
For those that saw the value of their home rise, often those undertaking larger-scale development, the refurbishment was estimated to have boosted the value of their property by nine per cent, adding around £20,000.
The larger the renovation, the larger the average increase in value too. While a light refurbishment typically adds around £9,000 in value, compared to an outlay of £7,000, a heavy refurbishment, involving a £40,000 spend on average, adds £96,000 to a property’s value.
Darrell Walker, head of sales, InterBay Commercial, said: “It may be an easy target for political point-scoring, but the private rented sector has been a success story since the financial crisis, catering for a growing proportion of the population that either cannot or chooses not to purchase a home.
“As the PRS has grown, it has also professionalised. As it has done so, the standard of accommodation for tenants has improved drastically too.
He went on to say these improvements were a “win-win” for tenants and landlords. “With interest rates still bumping along the bottom, those borrowing to support refurbishment can access historically cheap funding to enable improvement works.”
Walker added: “Landlords have been buffeted by the headwinds of policy change since 2015, and costs have risen for investors. Should this rate of change continue, it will weigh on landlords’ decisions to spend more on their portfolios, and risks undermining a decade of progress.”