Even though UK base rates continue to rise, with many suggesting a short-term peak of 5.5%, private landlords are turning more positive on the rental market. While the cost of buy-to-let finance is increasing, in line with the general mortgage market, other issues are impacting demand for rental property. Amid a challenging property market, seeing more private landlords looking to extend their portfolios is encouraging, but why?
Recent survey of private landlords
A recent survey found that 41% of private landlords plan to buy more rental property over the next 12 months. This will surprise many people considering there has been negative comment about the sector recently, with suggestions that small private landlords were looking to sell up.
There were several reasons given for planned expansion by private landlords, including:-
- 35% were responding to an increase in the number of tenants
- 33% as a consequence of a potential drop in property prices
Interestingly, in the previous survey, only 30% wanted to expand their rental portfolio due to increasing tenant demand. Perhaps more surprisingly, 54% were looking to take advantage of a fall in property prices. This would indicate that the expected fall in property prices may not be as severe as many experts predict.
What are the main factors impacting the private rental market?
While there are encouraging signs, it is crucial to take a balanced approach when looking at the pros and cons of the private rental market.
First-time buyers struggling
The current challenging economic environment and increasing interest rates have forced many potential first-time buyers to delay their plans. Consequently, more individuals, couples and families are now looking towards the private rental market in the short term.
Lack of supply
As we alluded to above, some private landlords have recently left the market due to increasing costs and regulatory changes. The result is a lack of supply in the private rental market, forcing higher rental rates. The London market is a prime example where it is proving extremely difficult to find private rental properties, let alone affordable homes.
Even though many private landlords are looking to extend their rental portfolios, it will take time to replenish the lost supply – this could be an issue for the foreseeable future.
Regulatory changes
Recently, we have seen significant changes to private rental regulations, which have increased landlord costs. While many supported enhanced tenant rights, recent regulatory changes may have gone too far. At this moment in time, it looks as though regulations will only get tighter, which could prompt other private landlords to reconsider their long-term plans.
Changing demographics
Over the last few years, we have also seen significant changes in the demographic of private landlords. One survey suggested a 74% drop in the number of older established landlords over the last 12 months. On the flip side, feedback suggests there has been a 181% increase in younger private rental landlords. A significant switch!
Conclusion
Despite buy-to-let mortgage rates rising with base rates, there is an increased appetite for private rental investment properties. This is fuelled by growing tenant demand and increasing rental rates, which has made buy-to-let properties more affordable for landlords. While there are various pros and cons for those looking at the private rental market, there is also a change in demographic. Will this increase in the number of younger private landlords help to address the supply issue?