When it comes to considering whether to buy your first buy-to-let property or add another property to your existing portfolio, many factors can help you decide when is the right time to make that move. As with any investment, purchasing a house or apartment specifically to rent it out, is not without risks. The most obvious risk is that you will need to find a tenant quickly or otherwise have to cover mortgage costs and running costs yourself. Even in major cities and the more popular larger towns, where tenants are more readily found, there will always be the risk of periods between tenant when the property stands empty for a time. Yet with every risk comes opportunity.
Now that the fear of further coronavirus lockdowns has mostly subsided, the property market is facing some new challenges. Homeowners are finding lower demand when they come to sell, and property values have experienced price flattening in some areas. Not good news for homeowners who want to sell and move elsewhere, yet it can be an excellent time for buy-to-let purchasers to build an investment portfolio. And, of course, property trends are not the same across the whole of the UK so there are some popular areas where demand remains high and property values continue to cautiously rise.
Landlords and the rental market
Demand for rental properties, on the other hand, is on the rise and good properties are in short supply in the most popular parts of UK. One factor at play here is that the buy-to-let market is shrinking due to recent tax and regulatory changes, with some existing landlords leaving the market. That means fewer good properties to rent, which is fuelling demand. So this decline in available properties to rent is creating new opportunities for investment in buy-to-let properties and to benefit from the many positives that the market does, in fact, retain. Those who fled the market recently could well find this decision was a little premature, especially when remaining landlords have found ways to thrive despite the tax and regulatory changes.
The shortage of suitable buy to let properties, as already mentioned, has fuelled rising rental prices and increased demand. Yet, there is another factor influencing the market. Many renters, having seen lockdown life, are now seeking to move to new areas. Perhaps they seek new rental properties that better meet their altered post-lockdown life. They could be looking to move to a more rural location as they can remote work anywhere, seek extra space to make working from home more comfortable, or are reassessing what is now important in their lives and are looking to move to make it happen. It is no longer essential to live within commuting distance of the nearest city or town for people who no longer work in the office 5 days a week.
Rental properties in some regions of the UK are forecast to see an estimated 15% rise in rental value in the next year or two, ensuring that they are likely to provide even better investment returns for those looking to let their new home purchase. The shortage of decent rental properties helping to fuel demand, now means increases of over 10% in rental values and a five year high in some regions of the UK. Given this positive news, now could provide the best property and rental opportunities before the market settles down.
The right property in the right location
Of course, researching the type of real estate and the best location for your rental property purchase is essential to understand costs, potential rental incomes and ongoing demand. Many studies have been conducted to compare supply and demand across the whole of the UK, so it pays to wise up on what to expect and make choices that are most likely to meet your expectations. This is even more essential if you plan to develop a property for the rental market and will need to fund your property development finance costs during renovations. The type of renovations also need to be carefully considered based on ceiling rental prices in any given location to ensure a good return on investment.
A buy-to-let mortgage is a little different to obtaining a standard mortgage with additional terms likely to apply. Seeking the advice of specialists in the sector can help you achieve the most favourable terms for a high value mortgage.
With real estate prices levelling, rental property demand rising, and the strong fundamentals of property letting still attractive, we are entering a period that could see the best opportunities for buy-to-let landlords in recent UK history.