BTL landlords are expanding their portfolio as tenant demand continues to rise.
A survey reveals that landlord confidence is strong as 41% of landlords say they are planning to buy more properties over the next 12 months.
Landbay has polled 1,127 landlords and found that the main reason for expanding their portfolio was the high demand from tenants, cited by 35% of respondents. Despite expectation of a mass exodus from the rental market, many landlords are buying even more properties to expand their portfolio, according to the latest Landbay landlord survey.
Results of the lender’s quarterly survey revealed that more than four in 10, or 41% of buy-to-let landlords intended to purchase additional properties in the next 12 months. A majority, or 54%, of landlords with 11 to 20 properties said they were planning to expand their portfolio, while 40% of landlords with more than 20 properties wanted to do the same. Around 44% of landlords with two or three properties in their portfolio expressed their intent to buy more.
The main reason for considering buying by 35% of the respondents was high tenant demand. A third, or 33%, of respondents cited a potential drop in house prices as the reason for wanting to purchase additional properties.
Paul Brett, Landbay’s managing director of intermediaries, said “once again high tenant demand serves as a key driver for landlords to consider expanding their property portfolio. While house prices have remained more robust than some landlords previously predicted, high rental yields are clearly still tempting some to landlords. Rather than the buy-to-let market languishing and lots of landlords exiting as some commentators have suggested, this data shows landlords are still seizing the opportunities available. We mustn’t forget those that are undecided though, bogged down by the state of the wider market or the anti-landlord environment we find ourselves in. For those that are still undecided, it’s important we all rally behind these landlords. We’re playing our part through constant innovation and expanding our product line to help meet a broad range of landlord requirements.”
Michael Gove says landlords are ‘vital’ for a fair rental market
Housing Secretary Michael Gove has praised independent landlords for their ‘vital’ role in the private rented sector (PRS). He has written for the member magazine of the National Residential Landlords Association (NRLA), and argues that landlords offer tenants more options, flexibility and value for money.
Mr Gove also outlines the Government’s plans to reform the sector with the Renters’ Reform Bill, which aims to balance the interests of landlords and tenants. He says that both parties share a common stake in a property, which is not only an investment but also a home, a security and a haven.
Mr Gove writes: “It is vital that these relationships work for everyone, and that we strive to strike a balance for all.”
‘His recognition of the importance of individual landlords’
Responding to the article, Ben Beadle, the NRLA’s chief executive, said “we welcome the Housing Secretary’s commitments, and his recognition of the importance of individual landlords. As he rightly notes, the Renters’ Reform Bill needs to work for responsible landlords every bit as much as tenants. Without this, it will serve only to exacerbate the rental housing shortage many tenants are now facing. The NRLA will continue to work closely with ministers to ensure the details of the Bill work for all. This includes campaigning for improvements to the courts system to ensure landlords are not left for months on end where they have a legitimate reason to repossess a property.”
Announced a series of reforms to improve the PRS
The Government has announced a series of reforms to improve the PRS and protect both landlords and tenants from unfair practices.
One of the key changes is to scrap Section 21 repossessions, which are also known as ‘no-fault’ evictions. The Secretary of State said "that this would ensure that tenants have more security and stability in their homes. However, he also assured landlords that they would have ‘more comprehensive grounds’ to reclaim their properties if tenants breach their contracts or cause problems. The Government would use ‘digital platforms’ to make the court system faster and more efficient for dealing with legitimate eviction cases."
The Secretary of State expressed his commitment to work closely with the NRLA, the leading association for landlords in the UK, to ‘shape the sector for the good of landlords, and tenants, right across the country’.
Bank of England sounds house price crash warning if landlords sell-up
The Bank of England (BoE) is warning that higher buy to let mortgage rates could see landlords sell up and leave the private rented sector – or push rents up for tenants. In its latest Financial Stability Report, the BoE says that the average increase in BTL mortgage repayments by the end of 2025 will be £275.
If landlords absorb the higher mortgage costs without passing a rise onto tenants, then the proportion of mortgages with interest coverage ratio (ICR) below 125% will rocket. The BoE calculates that at the end of last year, that proportion was around 3% – but by 2025 this would be a staggering 40%.
The Bank makes clear that the rental income will not cover the higher mortgage so landlords will have to hike rents or sell up. But if they sell up in big numbers, that could lead to a house price crash and put PRS rents up by eye-watering levels.
‘Mortgage costs are putting responsible landlords in an impossible position’
Ben Beadle, the chief executive of the National Residential Landlords’ Association, said “Growing mortgage costs are putting responsible landlords in an impossible position. Either they leave the market at a time when demand for rented housing is already outstripping supply, increase rents, or soak up growing costs which many simply cannot afford. Whilst help has been provided for homeowners in the form of the Government’s Mortgage Charter, nothing has been done to support the private rented sector. It is vital that ministers step in to protect the market from the impact of growing costs. For renters, housing benefit rates need to be unfrozen without delay to ensure they can cover their rent payments. Alongside this, tax hikes on the sector need to be scrapped to boost the supply of homes to rent that tenants desperately need.”
Even worse news for renters in the report
There’s even worse news for renters in the report with the BoE highlighting that national annual rent inflation in the PRS was 5% in May.
But one industry estimate indicates that rents for new lets have seen a 10% price increase in the year to June. That causes an issue because tenant households tend to have lower incomes than homeowners, relative to housing costs, and have little savings.
The BoE says that renters – around 2.1 million tenants live in a property with a BTL interest mortgage on it – would then be forced to rely on credit and have difficulties in paying that credit off.
‘Landlords are currently subject to a combination of factors’
The BoE report also highlights “landlords are currently subject to a combination of factors that are putting pressure on their profitability: higher interest rates and structural changes – including adjustments to income and capital gains tax rules and proposed changes to building energy efficiency regulations and tenancy protection. The interest coverage ratio (ICR), which is a measure of rental income relative to interest payments, shows the extent to which a landlord’s rental income covers their cost of borrowing. A landlord with high debt-servicing costs relative to their rental income (ie a low ICR) is more likely to experience repayment difficulties. Falling profitability could, in principle, cause landlords to sell their property investments and exit the BTL market. If this were to happen in large enough volumes, it could put downward pressure on house prices.”