Right now, could be the perfect time for landlords to grow their portfolios

Author: Rent Guarantor

25/11/2019

The latest housing market survey from the Royal Institution of Chartered Surveyors (RICS) shows that house prices are flat to falling as demand from home-buyers is weak, while new instruction levels are also low. At the same time, the survey also shows that demand for rental homes is continuing to rise, however, new supply of them coming to the market remains tight.

That’s a tough combination for estate agents, surveyors and letting agents, although with regards to the lettings sector, it is supporting higher rents, which surveyors expect to rise further in the coming months. It could, though, be just the right combination for landlords who are considering adding to their portfolio, even amid the tricky backdrop of tax and rule changes they’re undergoing.

Why buying now could work out well for landlords

The RICS survey show the following details in the residential sales market:

  • More surveyors who responded to the RICS survey said there was a decline in the number of new buyer enquiries than those who said there was an increase.
  • Newly agreed sales fell again in October.
  • The outlook for house prices over the next three months was for prices to decline.
  • The longer-term outlook for three next three months, however, rose to the most positive balance in nine months.
  • The largest proportion of surveyors on record said the number of appraisals they undertook fell.
  • House prices remained stagnant to weaker.

This suggests that with little demand or new stock coming onto the UK’s housing market, buy-to-let investors who are considering expanding their portfolio, may well be able to agree a good deal. Then, even though the immediate outlook for house prices in the UK isn’t great, landlords typically hold onto their property for at least 3-5 years, which should be enough time – according to expectations in the RICS survey at least – for prices to begin moving higher.

But its not just the sales market that’s potentially attractive to property investors right now. The lettings market is also in a sweet spot. The RICS survey shows:

  • Expectations for tenant demand over the next three months picked up yet again in October, to the strongest reading in almost three years.
  • Meanwhile, new landlord instructions to put new rental property on the lettings market declined again and at a faster pace.

This shows that while the property sales market isn’t too healthy for buyers or sellers, the lettings market is something that could benefit those landlords willing to buy more investment properties and rent them out.

Why landlords are right to feel cautious

However, while the market conditions in terms of property sales prices, activity and the lettings market might all be in the right position to take advantage of, other details might feel less supportive of such a move.

Specifically, the ongoing tax and rule changes being made by the Government for BTL landlords. Not only has the additional 3% stamp duty tax rate on property purchases above your own home added a notable cost to investing, other alterations relating to mortgage interest rate tax relief and also the cost of registering and updating a Home of Multiple Occupation (HMO), among others, have also increased costs. But that’s not all, while rules to ensure UK BTL landlords are supporting the switch to more energy efficient homes are a positive step, time scales and red tape make them unachievable in many cases.

“The Government needs to stop tinkering with PRS activity – through misguided eviction processes, taxation and fees - and help provide a careful balance between landlords and tenants' rights,” said Tamara Hooper, Policy Manager at RICS.

“This will encourage more landlords back to the market as well as ensure that tenants, including those who are most vulnerable, are not at a disadvantage in being able to find a suitable and affordable home to rent,” she added.

If some landlords do feel that right now is a good time to take the step of buying more investment properties – in the right area and for the right price – then there are other steps they can take to help safeguard their investment and rental income. They include:

  • Using a managed rent guarantor service like the one we provide. This can give landlords peace of mind that the rent will be paid no matter what and isn’t reliant on a family member or close friend.
  • Trying out new proptech options including different deposit options. For many people moving between rental properties, they don’t always have the deposit they need, when they need it. By using different options, underpinned by new and increasingly reliable technology, you can encourage even more tenants to show interest in your rental home.

Its not always easy to take a risk in the property market, particularly when there are a number of different issues of concern. However, if you calculate that risk and take all the steps you can to lower it, even by a little, the potential rewards may even surprise you.