Spring Budget Property Update
Thu 16 Mar 2023
The Private Rental Sector will continue to be driven by investment into the economy and levelling-up as set out by Jeremy Hunt in his 2023 Spring Budget yesterday.
Inflation is predicted to decline, which is a healthy sign for the economy, despite the fact that the spring budget had few property-related measures. Prior to the mini-budget, interest rates were 2% and increased to 6% by the end of 2022; they are currently between 4.5 and 4.5%. For quite some time, in order to qualify for a mortgage, you must be able to establish that you can afford more than the interest you will pay. Currently, this is roughly 6-7%, so investment landlords should be able to weather any banking turmoil for several more years.
The cost of living has already increased, so if inflation falls, the cost of living will fall as well. There will be a general election next year (after a maximum 5-year Tory term), and all political parties will need some ‘good news stories’ in the run-up to the election, so it is likely that the government will try to put some money in people’s pockets to make them feel better.
Private landlords are more adaptable and better able to adapt to the market than large corporate landlords, thus the conclusion is that the PRS will remain strong and continue to grow as demand increases – after all, UK stock has long been a valuable worldwide asset. The Private Renting Industry will continue to be driven by economic investment and levelling-up, so if you are contemplating a rental investment in the United Kingdom this year, here are a few things to watch out for and consider:
The Dos and the Do Nots of Investing
Think of the Long Term
Think of the long term not the here and now. Long term strategy is so important when considering a rental investment property. There are lower rental yields in the PRS now, between 2-6% but when you factor in house price growth over a longer period of time, this will increase your ROI to 6-9%. With the Renters Reform Bill on the horizon, with the abolition of the S21 Notice, it is imperative to think long-term and to have a planned exit strategy.
Try to see the Bigger Picture
See the bigger picture! Leverage your finance options - try not to borrow more than 65% LTV. Speak to a mortgage advisor to find the best finance options currently available to you.
Avoid the Void
Voids kill an investment so make sure you are guided by a regulated and established letting agent. Be guided on rental price and the best time for marketing the property. Ensure you maintain it, you look after your tenants and keep up to date with all of your landlord obligations.
Check the EPC rating
Look at the energy rating of the investment property: A is the highest and G the lowest. You already cannot rent a property at F&G rating and the proposal from 2025 is that you will not be able to newly rent a D or E-rated property. Landlord clients need to spend money on their rental properties and there are some easy wins - windows, boiler, insulation. Another reason to purchase newer properties for B2L.
Watch out for the red tape
Regulation changes are astounding in the PRS so do not let a selling agent sell you and investment property without at least discussing it with a knowledgeable or qualified letting agent. Getting things wrong can be incredibly expensive and there is no excuse for “not knowing” your obligations as a landlord.
Avoid poor tenant references
Poor tenant referencing: It is vital to check your tenants properly and keep checking throughout the tenancy (at renewal stage is appropriate) as circumstances can change. Major referencing agencies report that they see at least 1 forged passport per week per agent and getting rid of bad tenants takes time and money!
Don't sell up unless you have to!
Landlords, if you are generating a yield from your rental property then don’t sell it. Today the costs of selling a property are so much higher than they have previously been (and the process can take quite some time) and you will lose about 10% of the property value on exit. Trying to shift from one area to another is a mistake unless you really need the money and have to release equity. Instead, look to refinance and use that to buy in your next location.
Maintenance costs money
Do not buy a property which needs too much maintenance. New builds or under 10 years old is usually better, as you will have lower maintenance costs and possibly still have an NHBC in place. A lot of legislation is on the horizon regarding EPCs and older properties can require lots of work and money in order to be future-proofed.