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As we emerge from the uncertainty of the pandemic, many landlords are starting to question whether they should expand their property portfolio….
For those considering new purchases, the team at Track Capital, a property investment company operating across the UK and Dubai, takes a look at the current state of the market to assess and advise whether now is a good time for landlords to expand their portfolio, and, if so, where they should consider.
So, what does the market look like?
UK Property Prices are Rising
Starting with the broader picture of house prices, the upward trend in property prices seen in late 2020 has continued throughout 2021. The latest government data shows an increase in house prices of 8.0% over the year to July 2021 with the average house price of £256,000 over £19,000 higher than at the same point last year.
Research by mortgage lender Shawbrook Bank found that the average buy to let property increased in value by £15,000 over the pandemic. Whilst property price forecasts by Hamptons for the next 3 years put growth above pre-pandemic levels, averaging 2.5-4.5% year on year for the UK as a whole. In particular, Scotland and the North East are expected to perform strongly, with a projected increase of 20% and 21.5% respectively by the end of Q4 2024.
For landlords, this news is positive as portfolios should continue to increase in value at a steady rate. Meanwhile, with the backing of growing capital value across an existing portfolio, now may be a good point for further investment for those with one eye on expansion in the near future.
The Realities of The Rental Market
As property prices remain healthy the housing market remains a sensible investment, but what about the rental market?
Naturally, one effect of rising house prices will be a general tightening of yields, but it’s also well known at this point that one of the major effects of the pandemic has been the explosion of people working from home, which looks set to be a trend that will continue beyond its recent inclusion in our daily lives. Government consultation on proposals allowing new workers to request flexible working from day one is a sign that the demand for flexible working arrangements post-covid may be changing the landscape of working arrangements.
So, what does this mean for investors? Well, as house purchases reach numbers not seen since before the 2008 recession, and with people no longer needing to be in cities as often for work, the rental market is more spread out than ever before.
Rental growth is forecast to be above pre-pandemic levels outside of London, whereas in the capital the market is expected to recover by mid 2022.
As far as yield forecasts are concerned, Savills have identified household income growth as the main constraint on rental growth, forecasting a yield increase of 15.9% for the UK outside of London over the next 5 years and an increase of 19.3% inside London. Slower growth in property prices in London combined with the rate at which rents are rising will see London and the south recover quicker, demonstrated by the finding that rental yields in Hackney grew faster than anywhere else in the country over the last 12 months.
And What About Lending?
2021 has been a promising year for buy-to-let (BTL) landlords, with the number of BTL mortgage products on offer reaching 2,968 as of the start of September, an increase of 1,162 on last year. Of course, last year’s numbers are much lower due to the pandemic so it may be an unfair comparison, but the number of BTL mortgage products available in 2021 is also more than were on offer pre-pandemic (by about 71).
Notably, a lot of these products have shifted towards enticing BTL customers with more favourable terms, in particular with reduced fixed-rates and re-evaluated lending terms. For example, in September the average fixed-rate two and five year BTL product was 0.03% and 0.04% lower respectively.
September has also seen a number of lenders adjust their offerings; Barclays have reduced their BTL purchase and remortgage rates on products up to 75% LTV, whilst The Mortgage Lender has revamped its product line to remove LTV restrictions on aggregate lending up to £5m and increased its maximum loan amount for multi-unit blocks (MUB) and new build. There have also been revised offerings from a number of lenders, including:
- Landbay – Reduced pricing across core product range & introduced two year fixed rates for green product range
- Accord Mortgages – BTL mortgage rate reductions of up to 0.15% and increased BTL mortgage range
- Paragon Bank – Expanded range of BTL mortgages
- LendInvest – Introduced a 75% two-year LTV product at 3.69% and five-year at 3.95% for large houses in multiple occupation (HMO’s) and multi-unit-freehold-blocks (MUFBs).
These benefits however do not extend to the maximum 85% LTV BTL mortgages, where the average 2 year fixed rate is 5.61% and 5.83% for a 5 year fixed rate mortgage, an increase of 0.88% and 0.44% respectively. The number of products on offer for the maximum LTV is currently 19, a decrease of 13 from September 2019.
So, is Now a Good Time to Expand Your Property Portfolio?
With much of the uncertainty of the pandemic behind us, the growth of the UK property market looks set to remain strong. It would also appear that property investment is recovering to match pre-pandemic levels of growth. But whilst having your investments in property is a traditionally safer bet than leaving it in the bank, does the current rental market support this?
We think so, but with caveats: rental growth in London and the south east looks strong, especially amidst growing numbers of students studying in the UK’s cities, including record numbers of international students. This will mitigate the lower than average property price growth in the south than you may expect elsewhere.
Outside of London the reverse seems to be a more pressing issue for investors, property price growth is healthy as people are being liberated from their offices, although rental yields are limited by the rate of income growth. However, with a carefully planned investment strategy, it is more than possible to make an expansion of your property portfolio work for you.
In fact, there are very promising signs that rental markets in places such as Manchester and Liverpool will grow at a very healthy rate, with billions being invested into the economies of both of these cities, including Manchester’s £4bn Victoria North investment plan and Liverpool’s recent acquisition of freeport status. These northern cities are looking to establish themselves as centres for trade and innovation over the next couple of decades.
Furthermore there are strong indications that the student property market in key cities, such as Sheffield, Manchester and Birmingham can result in good returns for BTL investors as record numbers of students are admitted into universities and the number of international students choosing the UK for studying grows substantially.
Finally, the plethora of new mortgage products offered by lenders at reduced rates is a good opportunity to capitalise on the state of the market, and combined with a smart choice of location and type of property can make now an ideal time to expand your property portfolio.
