Interest rates have peaked, house prices are falling but rents continue to rise and there’s little sign of demand slowing – making a great opportunity for landlords.
Since the Bank of England last raised interest rates, house prices have barely risen, and are currently lower than they were in January, according to the most recent Halifax House Price research.
But while the cost of buying a new property is falling, rents are still on the up.
Figures from Zoopla show there are currently 15 people searching for each new rental property, more than double the pre-pandemic number, and rental prices for new lets are at a record high – up 6.6 percentage points year on year.
Zoopla added that this situation doesn’t look like it will change any time soon, with the gap between supply and demand not expected to change over the next 12 months.
“We expect demand for rented homes to continue to moderate slowly as one-off pandemic factors recede, but the higher cost of home ownership and a lack of affordable homes means the rented sector will continue to see continued demand on multiple fronts,” Zoopla said in its most recent rental market report.
That means for landlords able to take advantage, there is a key opportunity to expand their portfolio.
Knowing where to buy is key
But it’s not quite all rosy for buy-to-let investors – with landlords in different parts of the country seeing very different results.
In a few areas, rents have even been falling over the past three months – with Nottingham (-1.4%), Brighton (-1.1%), York (-0.4%) and Glasgow (-0.4%) worst affected, Zoopla found.
That means picking the right place to expand your portfolio – or even what to sell now to let you buy somewhere new – is key to maximising your growth.
Separate research from Savills shows homes in the North West and Yorkshire and the Humber are expected to grow in price fastest over the next five years; while rents are also expected to keep rising year on year.
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“Yields will be increasing because house price growth is weakening and rents are getting more expensive. We estimate that the average gross yield, that’s before any costs are accounted for – will rise from 6.1% today to 6.7% by the end of 2025,” said Catherine Westerling, head of lettings at Hamptons.
Hamptons added that people focused on yields need to be careful where they invest, with the average rental yield in the north at 7.4%, significantly higher than the average yield in the south of 5.2%.
That could tempt some landlords to sell properties in lower yielding areas to invest in places with better returns, but only those with larger deposits are likely to be able to secure finance after lenders put stricter affordability stress tests in place.
Westerling suggested that time is of the essence here, with house price growth predicted to return in 2024.
If you’ve not reviewed your portfolio recently, acting now to take advantage of the opportunities ahead could be key to maximising your profits and limiting your risk as the market adapts to the post-pandemic, higher-interest rate world.
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