Phil Rickards: “There has clearly been a spotlight shining on the buy-to-let market."
Almost four in 10 landlords (39%) have seen an increase in tenant demand over the last three months, despite lower confidence in short-term expectations, according to the latest quarterly index from BM Solutions.
The quarterly BM Solutions / BDRC Continental Landlord Panel1 found tenant demand has increased in each of the last four quarters, with just 6% of landlords having seen demand weakening to any extent.
Despite this, landlords felt less confident in short-term expectations for their own letting business and following the Government’s Budget announcements. All five measures saw further reduction in quarter 1 however, the speed of decline in three of the metrics (own letting business, rental yields and UK private rental sector) has slowed, suggesting these have plateaued following the immediate post-Budget downturn.
Tenant demand is strongest in the East of England and in Wales, with 51% of landlords in both areas reporting an increase in demand in the last three months. The largest quarterly increase was in the East of England (up 19 percentage points from 32% to 51%). At the other end of the scale, Central London saw a drop in landlords reporting increased demand in the last quarter, with the net number seeing an increase in tenant demand down six percentage points on Q4 20152 (see Table 1).
Market outlook
Confidence in the UK’s financial market has fallen, with a net 12% reporting feeling good or very good about the outlook for the next three months compared to 24% in Q4 2015. However, Landlords’ optimism over the prospects for the UK private rental sector has remained stabled with a net score of 24% in Q1. This follows significant falls during the past year (net 61% in Q1 2015) suggesting that the post-Budget downturns have begun to plateau.
Landlords’ future intentions
Landlords’ intentions to buy are back above intentions to sell in Q1, with a reverse in the trend of decreasing planned purchases and increasing planned sales seen in the previous six months.
Yields and voids remaining stable
The incidence of rental voids has remained broadly stable in the last quarter, with 30% of landlords experiencing a void period in Q1 (compared to 29% in the last quarter). The average rental yield achieved is relatively stable for a third consecutive quarter at 5.7% (5.6% in Q4, 5.6% in Q3, 5.9% in Q2).
At a regional level landlords, in the North West achieved the highest average rental yield of 6.1%, with those letting properties in Scotland (4.2%) and Central London (5.0%) the lowest.
Phil Rickards, head of BM Solutions, said: “There has clearly been a spotlight shining on the buy-to-let market and private rental sector over the past year. Landlords’ confidence in the outlook for the private rental sector as a whole and in their own letting businesses has dwindled since early 2015. However, there are early signs that this downward trend may have reached its plateau.
“The research found 55% of landlords plan to increase rents, partly as a result of the interest tax relief changes which are most pronounced for landlords in the highest personal income tax brackets.
“Despite this, the market is holding up well. Four in 10 landlords report that tenant demand has increased in the areas where they hold properties during the last quarter, and yields remain good.”
Rental income
The average portfolio in the Landlord Panel is worth around £1.3 million and generates an annual gross rental income of £57,000. The average portfolio currently has 8.1 properties. This equates to a per property value of £158,150 generating an average of £7,040 in annual rental income.
Portfolios in Central London and Scotland generate the highest gross rental income (both £76,000) with Yorkshire & the Humber and West Midlands the lowest (both £51,000).
The number of remortgagors consulting brokers has declined since the start of the year, according to the latest research from LMS. It fell to just 35% in March, the lowest amount since September last year and down from 39% in February.
It is also 11 percentage points lower than the 46% who consulted a broker at the start of the year. This leads to concerns that borrowers may be missing out on competitive rates or the most suitable products for their circumstances as intermediaries can access products not available on the high street.
Homeowners are more confident in their own ability to make a decision about remortgaging without consulting a broker likely, in part, to low expectations of a base rate rise. Expectations of a rate rise among remortgagors has fallen four percentage points from 16% in February to 12% in March, the lowest recorded by LMS.
Despite the competitive rates currently available, the number who remortgaged to lower their mortgage rate in March was just 57%, a drop of 11 percentage points year-on-year.
Motivations for remortgaging
The percentage of individuals who remortgaged because they came to the end of their current deal fell to 45%, a five percentage point difference from February’s findings (50%).
Nearly one in three (28%) remortgagors opted to increase the size of their loan, with more than one in five (22%) increasing the size of their loan by more than £10,000.
The research shows that the number of people remortgaging who did so to help their children buy a home is now at 3%, increasing one percentage point from February (2%). However, there was a month-on-month fall in the number of people remortgaging to pay off other debts in March (8% vs 7%) as well as in the number of people opting to remortgage for home improvements (20% vs 18%).
Andy Knee, chief executive of LMS, said: “A persistently low base rate and a host of competitive mortgages on offer may be leading many remortgagors to miss out on the best available rates through apathy. After seven years of a historic low rate, there is no sign of an increase in sight, reducing the motivation of homeowners to remortgage or consider their options.
“Concerning too, is the fall in the number of remortgagors seeking independent financial advice when remortgaging. While homeowners may feel confident in their ability to remortgage, shopping around is the best way to ensure you take advantage of the most competitive offers that may enable savings of hundreds of pounds each month, and advice can help to navigate the complexities of the mortgage market to find the most suitable product for your circumstances.”
