Latest Landlords Panel Report Reveals Increase in BTL Yields

The latest UK landlord survey shows an increase in average rental yields, as well as BTL investor intentions. At a tumultuous time for the market, the report reveals how landlords feel about the private rental sector.

The Q2 Landlords Panel report from The Mortgage Works is based on the responses from 708 NRLA members with properties in the UK. The report reveals data on the profitability of the market, what landlords are seeing from their tenants, and the level of confidence in the sector.

After what has already been a difficult year for property investors, with five Base Rate rises so far, and the record-breaking levels of inflation, sourcing the right property finance to boost profitability has been complex for the majority. However, given the current economic backdrop, the latest report reveals much more positive outlook than expected.   

Landlord Balance Sheet

In terms of profitability, 30% have reported making a lucrative, full-time living from their buy to let properties, which is the same level as in the previous quarter. 53% report lettings supplementing their ‘day job’, down from 57% in Q1, and 13% have said they break even, up from 11%. Only 4% report making a loss, just a 1% increase from Q1 despite the difficult market and sharp rise in interest rates that we have seen this year.

Looking more closely at the financials, the average rental yield for buy to lets has increased to 5.7% from 5.5% in Q1. As such, whilst the number of landlords reporting making a full-time profit from their portfolio remained the same, they will now be making more money from the properties than earlier this year. This reflects the trajectory we have seen of rental growth so far. Gross rental income per property has also increased to £7,891, up £218. Both these factors combined have seen the estimated portfolio value rise to £1.5 million, up from £1.4 million.

The report also highlights some of the problems landlords have experienced over the past quarter. 36% have experienced rental arrears in the last 12 months, up from 33% in Q1. This is likely due to the pressure the cost-of-living crisis is putting on tenants, whose bills have become much more difficult to manage. On the other hand, the percentage of landlords that have had a void period in the last three months decreased from 29% to 26%.

PRS and BTL Dynamics

The average portfolio size increased slightly from 8 to 8.1 properties, while the total number of landlords reporting an increase in tenant demand has dropped from 62% to 60%. The total percentage of landlords who have bought a property in the last three months has remained the same, at 8%; however, there’s been a 1% increase in those who have sold in that same time period, taking the total to 12%.

Most surprising here is the notable drop in tenant demand, which may again be caused by the financial strains of the cost-of-living crisis, making prospective tenants more frugal with their budget for new homes. This may also signify that the supply and demand disparity has ever so slightly begun to even itself out, potentially because people are remaining in their current housing situation due to rising costs. The minor increase in those selling properties may show signs of landlords leaving the sector, but at such a small percentage, the likelihood of this having much influence on the market is slim.

The statistics on buy to let mortgages seem to show an uptake in sourcing property finance. The total average amount owed in BTL mortgage borrowing has increased substantially, from £380,000 to £442,000. This trend continues when looking at the average number of BTL loans, which has risen from 5 to 5.4. Similarly, landlords with a mortgage on at least one property rose in the last quarter from 61% to 63%. These increases across all three data fields that track BTL finance are probably starting to reflect the sharp rise in interest rates over the past few months, which have engaged clients to secure new mortgages and raise capital before the competitive deals are gone. Nevertheless, these statistics show positive signs of strength in the sector.

Landlord Outlook & Confidence

Unfortunately, there’s been a notable drop-off in landlord confidence. The landlord’s panel tracks five areas of expectations, including the next three months of:

• Rental yields
• Capital gains
• Own letting business
• UK private rental sector
• UK financial market

Q2’s report saw a decrease in confidence across all areas. Only 7% of landlords have good/very good expectations for the UK financial market, and just 27% for the UK private rental sector. This is most likely due to the impact of the cost-of-living crisis on the economy. With Liz Truss’s plans announced yesterday to try and combat rising energy bills, we’re likely going to carry on navigating this financial strain for a while. As such, it’s understandable that landlords are losing their confidence in the financial market, and may be worried about the future of their property investments.

However, the latest data from Knight Frank reveals that the five-year property sales market forecast for the UK predicts growth of 16.9%. Five-year rental market forecasts also show an increase of 17.1%. Not only will this growth help to strengthen the private rental sector following the uncertainty of COVID and the current cost-of-living crisis, but it shall also help to boost landlord portfolios. These forecasts should hopefully encourage property investors looking to the future that the longevity of the property investment will come through the overside of the economic climate.

It's also worth remembering that this is just a three-month snapshot, and not yet a significant trend. While it’s certainly something we’ll keep an eye on, we don’t see any cause for concern about the stability of the PRS.

If you have any property finance concerns, we’d love to hear from you. We understand that the current market may be more difficult to navigate, right when sourcing the best interest rate is so important. Our specialist brokers are on hand to help. Call us on 0345 345 6788, or submit an enquiry here.

9th September 2022