Nearly quarter of landlords plan to divest property in next year – Paragon

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  • 04/08/2022
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Nearly quarter of landlords plan to divest property in next year – Paragon
The proportion of landlords who plan to buy property in the next year has fallen, and nearly a quarter are planning to divest property.

According to a report from Paragon, which surveyed around 700 landlords, 23 per cent said they intended to divest, which is an increase of three per cent on the prior quarter. Most planned to dispose of 2.3 properties on average.

Approximately 14 per cent of landlords said they planned to purchase properties over the next 12 months, which is four per cent down on the prior quarter. Most expected to buy around 2.2 properties.

More landlords plan to purchase properties through a limited company, going from 50 per cent in Q1 2022 to 62 per cent in Q2 2022. This is the highest level in three years.

This rises amongst those with six or more properties, with 78 per cent of landlords planning to use a limited company structure. This compares to 47 per cent of those with one to five buy-to-let properties.

More landlords expected to fund acquisitions using a buy-to-let mortgage, coming to 66 per cent in Q2, up four per cent on Q1.

There is also a pronounced increase since the start of the year in landlords planning to use equity to release grow their portfolio, going from 17 per cent in Q1 2022 to 28 per cent in Q2 2022.

The report also found that landlords who own 11 or more properties were less likely to purchase using buy-to-let lending, 67 per cent versus 46 per cent.

Around 19 per cent of portfolio landlords planned to release equity at 19 per cent versus 11 per cent of smaller landlords. Portfolio landlords were also more likely to use a lump sum of non-invested funds.

The proportion of landlords who planned to remortgage in the next 12 months increased by one per cent to 31 per cent compared to the prior quarter.

The majority, 57 per cent, said they would opt for a five-year fixed rate product for increased stability.

 

Average portfolio size

The report said that an average portfolio made up 8.1 properties, with 39 per cent of landlords owning between two and four properties.

Around 31 per cent had portfolio of properties between five and 10 homes.

The average portfolio is worth around £1.47m, generating an average annual gross income of £7,901, which is around £658 per month. This equates to a gross rental income of £64,000 a year.

The report added that the make-up of portfolios had remained relatively unchanged, with terraced homes proving the most popular at 58 per cent, then individual flats at 47 per cent and semi-detached houses at 45 per cent.

Larger portfolio landlords are more likely to opt for detached homes, houses in multiple occupation (HMO) and bungalows.

Tenant demand grows and tenant type remains stable

The most common tenant type is families with children, with over half of landlords, 56 per cent, housing this demographic.

This is followed by young couples and young singles which take the second and third most common cohorts of tenants at 48 and 45 per cent of landlords proving accommodation for these segments.

A high proportion of landlords are seeing an increase in tenant demand at 60 per cent, which is slightly down from the previous quarter at 62 per cent.

The strongest tenant demand was in South West and East of England, with net strong demand coming to 90 per cent respectively. This is followed by the South East at 88 per cent.

The strongest increase in net demand was in Outer London, which grew from 72 per cent in Q1 2022 to 85 per cent currently.

 

Void periods and duration fall

Void periods have dropped from the prior quarter, falling from 29 to 26 per cent, which is just one per cent higher than historic low of 25 per cent recorded in Q4 2021.

The typical void duration has also shrunk from 78 days in Q1 2022 to 71 days.

The highest void periods were in North East at 42 per cent, followed by the North West and Yorkshire and Humber at 35 per cent.

There is also a correlation between portfolio size and void periods, with 13 per cent of those with one property reporting a void compared to 49 per cent of landlords with 20 or more properties.

The proportion of landlords reporting rent arrears rose to 36 per cent in Q2 2022, up from 33 per cent previously. However, this is below the 42 per cent high during the pandemic.

 

Rental yields improve

The average yield rose by 0.2 per cent to 5.7 per cent in Q2 2022, with the highest yields records in the North. The yield in Yorkshire and the Humber was 6.8 per cent, 6.7 per cent North East and North East at 6.4 per cent.

Yields for HMOs were the highest at seven per cent, followed by terraced houses at 6.1 per cent and six per cent at flats in multi-unit blocks.

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