A new report on landlord sentiment and intentions provides invaluable insight into what other property investors are planning for the new year. How do landlords feel about BTL near you, and what property investment trends can we expect in 2024?
Buy to let lender, The Mortgage Works (TMW), has released their latest quarterly Landlord Panel Insights, including their Buy to Let Barometer, Rental Income Analysis, and Regional and Tenant Demand Reports.
Based on data gathered in Q3, the research gives landlords a glimpse into what their peers are planning for their property investments and an overview of how the PRS is performing.
Buy to Let Barometer
The latest buy to let barometer shows the most positive outlook from landlords so far this year. Most notably, the report found that the number of landlords planning to sell investment properties (divestment) has fallen for the first time in over a year, returning to Q3 2022 levels of 28%, a 5% drop month on month. A further 8% plan to purchase property in the next 12 months, which has remained steady since Q2, and 64% plan to purchase through a Limited Company.
Whilst we saw a slight decrease in the number of properties in the average portfolio, from 8.6 to 7.8, landlords did report an uptick in rental yields over the last quarter, now at 5.3%.
Landlord confidence and optimism have also recovered. Landlords feeling good or very good about their ‘own letting business’ is up 11% to 33% of landlords over Q3. Confidence in capital gains and rental yields also rose month on month, from 18% to 24% and 33% to 49%, respectively. This shows landlords now feel stability returning to the market and are less inclined to sell up when rental yields remain steadfast. As confidence continues to return and grow, it will be interesting to see whether many more will look to purchase new properties when the Q4 report is released.
Rental Income Analysis
The Rental Income Analysis report reflects landlords’ annual gross rental incomes over the last 12 months. In Q3 2023, the average income was £69,000, down just £2,000 from its all-time high of £71,000 in Q2. Despite this modest decrease, annual rental income generated per property rose in Q3, up approximately £567 since Q2.
Regionally, five of the eleven regions tracked currently fall below the national average gross rental income. The North East, West Midlands, South West, and East of England all fall into this bracket, but Wales continues to achieve the lowest average income at £58,000.
Looking closely at how property type influences rental yields, HMOs and Multi-Unit Freehold Blocks unsurprisingly took the top spots, with average rental yields of 6.3% and 6.0%, respectively. However, it may come as a shock that bungalows now generate the third highest average rental yields, at 5.7%. Whilst there’s no real indication of why this may be, with rental demand only increasing, many tenants who typically would have looked at flats and houses may now need to be open to different property types due to low property supply. This may offer landlords new ideas for diversifying their portfolios in the new year.
Regional Snapshot
The regional snapshot report continued to show more positive signs for the rental market. Across the UK, there was a slight drop in the percentage of landlords who faced rental arrears in the last 12 months from Q2, down from 35% to 33%, and just 28% reported a rental void period in the last three months.
The report found that landlords in the West Midlands have the highest number of properties in the average portfolio, at 10.7. In contrast, landlords in the South West recorded the lowest average, with 6.5, just slightly lower than the UK average of 7.8.
Landlords in the West Midlands reported the highest increase in tenant demand, at 76%, compared to 61% in the East of England. However, it’s positive to see tenant demand continue to increase nationwide, with a UK average of 71% of landlords seeing an increase.
When it came to sale and purchase activity, 23% of landlords in Yorkshire and the Humber sold a property in the last three months, compared to just 9% in Central London and the South West alike.
Yorkshire and the Humber also showed the lowest signs of purchase activity across the UK, with just 1% of landlords buying a property in the last quarter, compared to a staggering 17% in the East Midlands.
Tenant Demand Report
TMW has its own methodology for calculating its Tenant Demand Index (TDI). This is based on:
The percentage of landlords reporting demand growing significantly or slightly
MINUS
The percentage of landlords reporting tenant demand is decreasing slightly or significantly
In Q3 2023, the TDI hit a new record high of +68, a 3% increase from Q2. However, the majority of regions achieved a higher average than this, with the exception of the North East, Yorkshire & Humber, and the East of England. The latter is the only region to see a decrease in its TDI score this quarter, down 5 points to +60. Conversely, the West Midlands moved from being the lowest-scoring region in Q3 to surpassing Outer London as the highest-scoring region, with a TDI score of +74.
What does this mean for landlords?
As confidence returns to the UK private rental sector, it’s clear that landlords are starting to feel more optimistic about their buy to let prospects. With plenty of opportunity to maximise on portfolios in the new year, this report should set up landlords to start to plan their 2024 property investment ventures.
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