The UK property market continues to offer a stable asset class to landlords and investors, who are being increasingly strategic with their portfolios.
UK house price data continues to show a steady rise in property prices, with the latest ONS data showing a 4.9% increase in property prices in the year to January, while this week’s Nationwide figures show a 3.9% annual rise.
Increasingly, though, landlords are focusing on much more than house price growth, as the pace has slowed from recent historic spikes and is now considered to be rising at a more sustainable rate.
It means that those who may have previously been inclined to ‘flip’ property – buy cheap, potentially renovate, and sell for a profit due to quickly increasing house prices – are likely to be switching to a more long-term view of the market. This means looking at a greater number of factors, from property type to specific location, as well as target tenant and ways of maximising rental yields.
Diversifying your property portfolio comes with a number of advantages, from reducing risk to boosting your income and capital growth potential, and allowing you to adapt more easily to economic conditions as they arise.
Pushing ahead with plans
This increased focus on diversification among property investors has been noted by Darrell Walker, Group Sales Director at Chetwood Bank for ModaMortgages and CHL Mortgages for Intermediaries.
Commenting on the latest house price data from the Office for National Statistics (ONS), he believes the current trend of “sustained growth” is set to continue, supported by enhanced activity at the start of the year spurred on by the stamp duty change, but also as the market begins to “thrive in more of a ‘business as usual’ environment”.
He adds: “We’ve seen an increasing number of enquiries from landlords diversifying their portfolios to include alternative asset types like HMOs, which should support further growth in property prices. We expect investors who have been waiting to implement their plans to move forward in the coming weeks, meaning we expect to stay busy in the months ahead.”
As with any renewed focus on strategic investment, Darrell notes that “speed and flexibility” will be key for landlords this year when it comes to financing, with investors focusing just as much on quality of service as on interest rates.
Ways landlords can diversify
- As mentioned by Darrell, choosing different property types, such as houses in multiple occupation (HMOs), can be a good way of diversifying a property portfolio. HMOs have been noted as the highest-yielding type of rental property, and are seeing greater tenant demand due to the fact they can be cheaper for the tenant than renting out a whole property. Other property types including student property or even commercial property, which can offer better yields but may take a significant amount more investment.
- The UK housing market continues to experience a north-south divide, with certain locations consistently and significantly outperforming others when it comes to capital gains and rental prospects. This might mean diversifying from a suburban area into a city centre location, in order to capitalise on the huge levels of tenant demand. The likes of Manchester, Birmingham and Liverpool have been ranked as top investment locations in recent years.
- Looking at leverage can also allow landlords to diversify their portfolios. For example, rather than invest everything into one property, landlords can use borrowing to invest in two or more properties – possibly in different locations or property types – in order to spread their risk and potentially boost returns. This could be a strategy employed by more landlords as borrowing costs come down.
Buy-to-let remains a resilient sector
With multiple factors influencing landlords’ decisions at the moment, from tax changes such as the end of stamp duty relief, to the upcoming Renters’ Reform Bill, some have opted to bow out of the market as the profitability of their portfolios has decreased.
In a recent survey from Landbay, although 47% of landlords said they had no plans to sell any properties – particularly those with portfolios of 4-10 rental properties – 35% said they do intend to sell, citing landlord taxation as the biggest reason as well as worries about evicting tenants after the Renters’ Rights Bill is passed.
However, only 1% said they would exit the market entirely and sell all their properties, which could point towards the fact that landlords who are selling some of their properties may be employing a more strategic focus, potentially offloading older properties for more energy efficient ones, or choosing new locations in order to generate higher yields.
Rob Stanton, sales and distribution director at Landbay, said: “As ever, I think landlords and the buy-to-let market in general have once again shown to be more resilient than many people give them credit.
He added, “Our research has shown that not only are a good proportion of landlords intending to buy this year, but they are also keeping hold of the properties they have. This is hugely encouraging and absolutely critical to the overall health and wellbeing of the PRS and wider UK housing market.”
