One in five planning to expand
Phil Rickards is head of BM Solutions
In general, buy to let investors are a self-reliant bunch. They have confidence in their ability to choose the right properties; they believe they prepare for unexpected costs and budget for repairs, voids and arrears; and they believe they will still be able to generate returns whatever is happening in the wider economy.
It follows then that despite the fact that landlords’ confidence in the UK’s financial market overall fell significantly in the last few months of last year (with just 24% rating its prospects for the next three months as good or very good compared to the 37% who were upbeat in Q3) the latest BM Solutions Buy to Let index shows one in five landlords are planning to expand their portfolios further in 2015.
One of the main reasons for this show of optimism from landlords stems from the high level of tenant demand, with the Index showing 37% of landlords reporting demand had increased in Q4 whereas only a minority (7%) found tenant demand to have declined.
Another big positive for landlords the last quarter of 2014 was the fall in rental voids and tenant arrears. These two issues are a constant concern for landlords, but the latest Index shows the incidence of both fell to an all time low in Q4 2014. It found just three in 10 landlords had experienced a void period in Q4 with a similar figure (32%) saying they had contended with tenant arrears in the past year.
Despite landlords saying they are increasingly uncertain about whether the economy can keep on its current track, the latest inflation figures show another fall in the rate of increase, a fall in the unemployment rate, and real growth in both wages and the economy. So in the short term at least the figures are positive and the likelihood of an interest rate rise has receded towards 2016. However, even when the interest rates do start to climb landlords claim to be well insulated, with the typical landlord saying it would only start to cause them serious problems when they climb above 7%.
Last year the buy-to-let market grew in tandem with the first-time buyer market, posting an annual increase of around 23% so all things being equal it’s looking good for landlords in 2015.
The two issues that are out of landlords’ control are the European Mortgage Credit Directive, which is publishing its final rules at the end of March and will have some impact on buy to let, and the lack of new housing being built. In order to meet the needs of both first-time buyers and those wishing to rent we need to see an increase in the number of new homes being built.
Lloyds Banking Group is taking this issue extremely seriously – as should landlords – and as such has set up the independent Commission on Housing. With cross party chairmen and support the Commission produced a Report at the end of January which calls for a progressively rising target for national house-building to deliver 2 million to 2.5 million homes by 2025.
While they are self-reliant, if they are to continue to expand landlords – together with the whole housing market – need to see an increase in housebuilding. A healthy housing market requires the supply to be able to meet demand.