Confidence is on the rise in the UK property investment landscape, with the ongoing gap between tenant demand and property supply playing a major role.
Reports of prospective tenant numbers continuing to outpace the number of rental homes listed on the market are still cropping up as we head into 2024, and the situation does not look set to change anytime soon. For many landlords, it means unprecedented demand for their properties as soon as they list them.
This ongoing high level of tenant demand was the reason given by the highest percentage of buy-to-let landlords (31%) as to why they plan to expand their property portfolios in the next 12 months, according to a new survey by The Mortgage Lender.
The survey found that 52% of residential landlords had invested in more property over the past year, 25%of which had added a single property and 27% had bought multiple buy-to-lets. And this trend certainly looks set to continue, with a similar number of landlords saying they were eyeing up more investment opportunities for 2024.
While tenant demand was the top reason cited for planning to snap up more rental homes, almost three quarters (74%) of landlords said they were confident in the UK housing market for the 12 months ahead. A quarter of landlords also said they had spare capital to deploy, spurring them on to invest in more property.
Diversify to tap into tenant demand?
While tenant demand certainly makes the rental side of property investment extremely appealing at the moment, with this situation not looking likely to change in the near future, tenant demand can vary from location to location, and between different property types.
This is why buy-to-let landlords – from experienced portfolio investors to first-time landlords – should conduct thorough research before investing in property, to ensure they are buying in a location with good prospects, and in the sort of rental home that is popular in that area.
Interestingly, diversification in both of these aspects is playing a big role for landlords right now. Just over a fifth (21%) said they had been keen to diversify their portfolios across different property types, while the same number also said they wanted to diversify across different UK regions.
The north west, Yorkshire and the Humber, the north east and the West Midlands have all been highlighted as property investment hotspots in recent reports. All of these regions offer opportunities with below-average house prices, many of which are considered high-yielding due to tenant demand.
Energy efficiency is also proving important, even after changes to the minimum energy efficiency standards (MEES) in the private rental sector were scrapped by Rishi Sunak. A fifth of landlords (20%) said they had added to their profile with property that had a better energy performance certificate (EPC) rating.
New-builds are therefore another property that is high on the agenda right now for many property investors, who want to future-proof their investment as much as possible. In terms of tenant demand, the lower bills associated with better energy efficiency are a selling point.
More optimism now
Chris Kirby, Head of Key Accounts & Specialist Distribution at The Mortgage Lender, comments: “BTL plays an important role in the residential property market, ensuring that there continues to be a good supply of quality and well-maintained rental properties to meet consumer demand.
“Last year’s high inflationary and interest rate environment saw unsettled confidence levels among prospective homebuyers, though for residential landlords our research shows they have not been as discouraged. Many are taking opportunities to grow their portfolios, and with rates reducing, average rents increasing and house price growth predicted, landlords have good reason to be optimistic.
“It certainly paints a positive picture and highlights the continued interest in BTL as an asset class.
“For those landlords who are looking to grow their portfolios, it’s important to seek advice to ensure they are accessing the best possible opportunities in the coming year.”