Written by Allison Thompson, National Lettings Managing Director, Leaders
For the past few years, there has been a succession of reports in the media about landlords selling up and quitting the industry. And it’s true that as legislation has been tightened and renters’ rights have been prioritised, it now takes more time, effort and knowledge to succeed as a landlord than it did in the past.
But for those who run their portfolio as a professional business and take the time to understand the ever-evolving market needs, or work with a qualified agent who takes care of these things for you, buy-to-let can still deliver great returns. Rather than being a sector going through a slump, as many headlines seem to suggest, we think it could actually be a great time to be a landlord.
Here are four good reasons why:
https://ac1865d1b4a9abfbb7fd2b368623e502.safeframe.googlesyndication.com/safeframe/1-0-45/html/container.html 1. Demand is continuing to outstrip supply for many properties
For many years now, the private rented sector (PRS) has not been able to provide enough homes to meet demand – and that’s across all tenant types, from young adults wanting to rent a room to families looking for an unfurnished long-term let. The population is growing, and the private rented sector (PRS) isn’t.
In England and Wales (ONS data), the size of the PRS peaked in 2016/17 at 20.3% of all housing, with around 4.8 million dwellings. The latest figures (for 2023) reveal that the PRS now accounts for 18.8% of housing, and that the number of homes has barely changed over seven years.
During that time, 2016-2023, the population increased by almost 2.5 million or 4.25%, and a large proportion of those additional people require rented accommodation.
https://ac1865d1b4a9abfbb7fd2b368623e502.safeframe.googlesyndication.com/safeframe/1-0-45/html/container.html 2. Rents are rising faster than the historic average
Every month for the past three years, average UK private rents have consistently risen at an annual rate of more than 5%, with an overall average of 7.4% annual growth (ONS) – far in excess of the historic average of around 2%. Although growth has slowed this year, in the 12 months to August, average UK rents still increased by 5.7%, up by 5.8% in England and 7.8% in Wales.
3. Mortgage rates are falling
After high inflation caused a spike in interest rates in 2023 and many landlords coming off fixed deals found their repayments increasing significantly, the market has thankfully settled, and rates are now much closer to the long-term average of 4%-5%.
The Bank of England has already cut the base rate down to 4% throughout this year, and there is one more base rate review before the end of 2025. Capital Economics has forecast that it will reach 3% by the end of 2026.
4. For most, capital growth is at least keeping up with the rate of inflation
As a landlord, inflation is one of the most important metrics to track – both for rental income and capital growth – to ensure the value of your investment profits doesn’t drop.
With the value of the average property rising consistently at or above the rate of inflation in most areas, landlords’ investments are increasing in real terms, providing equity gains.
Although that’s just an average, and not every property will be rising in value, it does mean that if you have bought in an area of high growth, your equity growth should be beating the figures above.
To get the best capital returns, it’s important to carefully research an area before buying to ensure the economic and demographic fundamentals for growth are in place.
