Recognising and adapting to any market changes is crucial when it comes to property investors remaining successful within the sector.
Property investors are currently proving to be “cautiously optimistic” while also making certain portfolio and financial changes in order to align with ongoing or projected difficulties in the sector, according to a new report from Handelsbanken.
One of the key ways that 91% of property investors are reacting to recent rises in mortgage interest rates, which will make borrowing more expensive, is by prioritising reducing their debt. By paying off borrowing at a faster rate, landlords should be able to offset some of the cost increases.
This is particularly important as property prices have stopped accelerating at the rate they did in the immediate post-Covid period, meaning many investors have switched their focus more towards monthly rental yields. By focusing on lowering mortgage outgoings, this will positively affect the overall income.
Are property investors buying, selling or sticking?
According to the survey, which took in responses from 200 professional landlords across the UK operating in a range of sectors, 59% of property investors are planning to increase the size of their portfolio this year. As Handelsbanken notes: “This represents a strong and continued interest in UK property as an asset class from serious investors.”
Just over a quarter (27%) of respondents said they would keep their portfolio at its current size, while 9% said they were planning to dispose of all their assets. Finally, 5% said they would reduce the size of their portfolio.
When asked about demand in the residential property sector, 40% of property investors said they expected demand to increase significantly over the next 12 months, and 50% said it will increase slightly. This could be a response to the much-reported supply shortage keeping competition high in the market.
Staying ahead of the game
It is no secret that upgrading the UK’s housing stock – both private and rented – is underway in terms of government proposals for the net-zero carbon emissions target. Property investors looking to future-proof their portfolios as much as possible are already trying to factor this into their investments.
This certainly presents a number of challenges within the housing and commercial sectors alike, though, and landlords are expected to have a legal obligation to provide private rented sector housing that achieves an energy performance certificate (EPC) rating of C in the coming years.
Awareness still isn’t as high as it should be, however, with only 52% of respondents being “very familiar” with government plans, although the proposals are yet to be passed and the goal posts could well be changed before the expected deadline.
But a large number of the property investors in the survey do intend to invest money in order to ensure their property portfolios achieve the required energy efficiency ratings. More than half (55%) said they plan to spend £100,000 or more over the coming year on upgrades or energy efficient investments.
A further 19% plan to invest £500,000, although it is worth noting that a proportion of the respondents are active in the commercial property market only, which has its own energy efficiency criteria.
A large number of those surveyed (92%) said that they thought the total value of their property portfolio would rise by at least 5% over the next 12 months, which could certainly go some way towards absorbing the costs of additional expenditure to meet the government’s green targets.
Alert to opportunities
Commenting on the findings, James Sproule, UK Chief Economist at Handelsbanken, said: “In contrast to owner-occupiers, professional landlords will often have a more detached and less emotional view of property values and are more likely to act in a way that recognises market realities.
“That’s why we are seeing landlords sensibly paying down debt, while others are increasingly alert to opportunities in sectors such as offices.
“More broadly, with interest rates still rising, it is difficult to see residential prices stabilising in the short term. At least with inflation remaining well above its target level nominal prices will not reflect the real full impact of price declines.
“Looking forward, the peak of interest rates, likely to be in August, will set the scene of a price recovery in the autumn and early 2024.”
