The thought that renting out property is a passive investment has long been a misconception, However, property management has become quite complex quite quickly. When it comes to property, just like any other investment, it will need careful management to be successful.
We’re going to look at a few of the trends and indicators that landlords can use to make smart decisions going forward from 2022 on. By using these trends and indicators, property investors will be able to get much better returns.
Eviction laws have undergone significant changes in the last few years. There is a tendency for longer tenancy terms due to the phase-out of Section 21 notices, as well as tenant protections and rights. In 2018, the government publicized a press release stating they wanted to increase the standard tenancy length from 6-12 months to 3 years. The legislation is moving towards standardisation of tenancy lengths, even though no such standardization is being planned in the near future.
To achieve their longer-term ambitions, smart investors can read the writing on the wall. If you’re in property for the long haul and plan on leasing properties for years to come, this is likely good news for you. A longer tenancy term results in a lower churn rate, therefore lower costs. As long as you conduct thorough vetting and are diligent in inspecting and maintaining your property, long-term tenants can be a boon to your business. If, however, you’re planning to exit the PRS at a certain point, longer-term tenants might not be on your Wishlist. Short-term lets, HMOs, student tenancies, and other types of short-term rental tenancies may be good options if you want a shorter-term business model.
Mortgage Interest Rates and Lending Requirements
The Section 24 legislation, which was introduced in April 2017, is familiar to landlords. The tax relief for mortgage interest for non-incorporated landlords has been phased out since it was introduced.
Landlords who had made use of extensive loans to build their portfolios were severely affected by this. By now, since the relief has been phased out completely, for many landlords gearing is out and cash purchasing is in.
Lending properties is Getting trickier for investors
Aside from tax relief adjustments, obtaining credit is becoming harder. Mortgage lenders are increasing the deposit requirements for investment mortgages and tightening their criteria. It appears there is more financial disruption to come given that inflation is high, the Bank of England base rate is increasing, and the cost of living is rising.
Some property investors may find themselves in an awkward position, especially if they are planning to expand their portfolios.
Investors without cash to invest in new properties or needing to raise capital to expand, or even those who simply want to be hands-off might want to consider the increasing popularity of REITs. You can invest in these properties without a huge capital outlay, and if you choose to do so wisely, you can also get a quick return on your investment (ROI).
EPC and new Energy Standards
In recent years, the government has not been shy about its plans to hit energy efficiency targets; legislation aimed at helping them achieve this has touched nearly every aspect of society. In the private rental sector, landlords have already been pushed to improve energy efficiency. In 2020, the Minimum Energy Efficiency Standards (MEES) were introduced, which meant that rentals could only be let out if they had an EPC rating of E or higher. Landlords who struggle to meet this standard can only be exempt if they can prove that they have spent £3500 or more trying to achieve it. This has already increased spending for a lot of landlords with older properties.
Licencing based on regional requirements
Licensing rules in England are regional, so some areas may require you to be licensed. In some areas, licensing only applies to certain types of property, while in others no license is required at all. Even though many property investors and interest groups believe licensing schemes are the sole domain of HMO landlords, more and more licensing schemes that apply to residential landlords are making their way through the consultation process. Smart landlords will note, however, that England’s licencing rules are the exception rather than the rule at this point.
Is “Build To Rent” the next big thing?
Build to rent is a rapidly expanding property sector. Think again if you have been discounting build to rent as something that doesn’t apply to you. The popularity of build-to-rent has been driven largely by large corporations investing profits in purpose-built rental properties. Savills predicts that by 2031 there will be 1.7 million build-to-rent homes, up from 5% last year.
Regardless of whether you are interested in build to rent or not, you should be aware of where build-to-rents are going up in your area because they will represent fierce competition in the private rental market.