Cat Armstrong is mortgage club director of Dynamo for Intermediaries
Another month has flown by since my last article and there appears to be little sign of any sustained lull in buy-to-let activity before the inevitable tailing off over the Christmas period (yes, I said it!).
Throughout the BTL market, we continue to see a host of data confirm much of what we are experiencing as a business. Although it’s important to constantly monitor the performance of the sector and its many working parts.
One of the most positive headlines to emerge in recent days was that tenant demand hit an all-time high in Q3. This was the headline which emerged from Paragon Bank which outlined that almost seven in 10 (69%) landlords said they had seen demand grow in Q3 – the record high – with 36% describing this happening to a ‘significant’ level.
The South of England was suggested to be driving most of this activity. A net increase of 79% was reported by landlords in the South West and 74% in the South East, excluding London, with this metric shrinking to 59% in the North East. In Central London, 54% of landlords saw demand increase, with 16% registering falling demand, the highest of all regions in the country.
However, Paragon noted that the script has been flipped since Q3 2020, when 16% of landlords in Central London saw higher demand and 58% saw lower demand.
As outlined by Paragon managing director Richard Rowntree, seasonal demand has added to already high levels of tenant demand and, when combined with a shortage of property in certain parts of the PRS, this is leading to rental inflation. And it’s up to lenders, with the support of the intermediary market, to deliver products and service to help landlords meet a diverse range of tenant needs.
Moving onto yields, the seventh iteration of Fleet Mortgages’ buy-to-let rental barometer highlighted slight falls in rental yields compared to the same quarter last year.
However, Fleet point out that in 2020 this covered the first full three-month period out of lockdown where yields spiked in certain parts of the country. The specialist lender pointed to a more recent comparison between Q3 and Q2 this year, with total rental yield on residential buy-to-let properties across England & Wales up to 6.3%, a 0.7% increase on the previous three-month period. In addition, seven out of 10 regions – all except East Anglia, South West and South East (which has the same rental yield figure as Q2) – saw an increase on the Q2 2021 figures.
Once again, the North East of England posted the top rental yield regional figure for the fifth quarter running, improving again to 8.3% (up from 8% in Q2 this year), with the North West climbing into second place with 7.7% (up from 6.9%), Yorkshire & Humberside came in third with 7.3% (up from 7.2%), and Wales also registered a 7.3% yield (up from 6.3%).
The slight fall in year-on-year rental yields may not appear to be the most positive news but – as outlined in the barometer – it’s important to maintain some kind of perspective and highlight just how robust and healthy these yields are for the vast majority of landlords across the UK. Yield and demand are obvious factors for any landlord but there are other considerations to take into account when ensuring that individual BTL investments are a success.
According to Hodge, more than half (53%) of landlords said getting the right tenant in place was their top consideration, while 42% identified finding a good property manager as paying a major role. The research, which asked around 100 portfolio landlords and brokers for their views on the BTL market, also found that being able to re-let properties quickly was high up on landlords’ priority lists, with 37% citing this as a key concern.
Landlords have faced many challenges over the years, including many from a regulatory and tax standpoint, and the BTL marketplace has evolved greatly over this time.
However, the fundamentals largely remain the same and these revolve around tenant demand, yield, tenant quality and the successful management of these properties. Thankfully, it’s a combination which the vast majority of landlords are successfully managing and this is why the BTL market will continue to attract strong levels of business for the foreseeable future.
