Buy-to-let investors | The Evolving Landscape of BTL

Understanding the Profound Changing Face of Buy-to-Let | 2021

Shawbrook Bank’s Gavin Seaholme looks at the impact of the COVID pandemic on buy-to-let investors and tenants.

The learning objectives for this article are to:

To be able to identify the value and size of the PRS market
To be able to explain how landlords & tenants have changed since the Covid-19 pandemic
To be able to explain what changes are taking place regarding EPCs and their impact

Almost half of private landlords cut tenant’s rent in 2020

Since March 2020, residential landlords estimate they have given up £6.5k in rent reductions and a further £ 7.5k on payment holidays.
Over a third of landlords proactively offered a rent reduction or payment holiday.
On average, rent reductions lasted four months, and full payment holidays lasted three months.

According to upcoming research from Shawbrook Bank, almost half (46%) of landlords reduced their tenants’ rent due to the pandemic.

28% of landlords gave tenants a full rent holiday for up to three months. During this period, tenants were not liable to pay any rent. Additionally, 18% of landlords offered a rent reduction, where tenants paid a lower rent as agreed. On average, rental holidays lasted three months, while rent reductions lasted four months.

Landlords who provided a payment holiday estimate they lost £7,500 on average. In comparison, rent reductions cost landlords £6,500 on average.

When asked about the agreement process, over a third of landlords who offered a rent reduction said they proactively offered it. Furthermore, 45% said it was a mutual decision. Concerns about furlough, job security, and redundancy were common reasons for suggesting rent reductions or holidays.

Portfolio landlords owning four or more properties were likelier to agree to rent reductions than single-property landlords. Specifically, 17% of portfolio landlords admitted to losing income compared to 12% of single-property landlords.

The majority (59%) of landlords who gave rent reductions did this for more than one property.

Value of the Private Rented Sector grows to £1.4trn

Rising house prices, largely but not exclusively driven by the Stamp Duty holiday, have driven growth in the value of the Private Rented Sector (PRS) of 5.8% in the last year.
Rising house prices to boost tenant demand
Increasing landlord confidence, low mortgage rates, and rising rental yields are further set to boost the PRS in the future.

The Growth of the Private Rented Sector (PRS) in the UK

The Private Rented Sector (PRS) in England, Wales, and Scotland grew by 5.8% to £1.4 trillion last year. Since the first national lockdown, house prices have rebounded significantly, showing strong growth. In March 2021, house prices rose by 9.9% annually, driven by the Stamp Duty holiday. This incentive bolstered confidence among Buy-to-Let Investors, encouraging investment activity across the UK.

Rising Buy-to-Let Property Values

Buy-to-let property prices experienced notable increases during this period. By December 2020, the average Buy-to-Let property value had risen by 5.6% to approximately £258,900. Over the past eighteen months, the PRS has faced considerable changes, influenced by tax reforms and stricter regulations. These shifts prompted some landlords to exit the market, resulting in a contraction in PRS size.

At the same time, the pandemic affected tenant behaviour, with many returning to family homes or moving for more space. Others took advantage of the Stamp Duty holiday to transition to homeownership. Consequently, the choices available to buy-to-let investors shifted, contributing to the reduction of the PRS size. Nevertheless, future trends suggest a positive outlook for sector growth.

Increasing Demand from Renters

Tenant demand has surged, creating lucrative opportunities for Buy-to-Let Investors. Over the past 12 months, 42% of landlords reported increased property demand. Furthermore, two-thirds (67%) of landlords expressed confidence in the property market’s future over the next year. In response, a third (34%) of landlords plan to purchase additional properties to meet growing demand.

Renting as a Long-Term Trend

Rising house prices have extended rental tenures, offering advantages to Buy-to-Let Investors. Nearly half (49%) of renters expect to continue renting for life, citing affordability as a major factor. Others prefer renting for its flexibility, with 10% valuing reduced responsibilities and 7% enjoying access to better locations. These trends significantly influence investor strategies.

Regional Opportunities for Buy-to-Let Investors

High rental yields remain a key driver for Buy-to-Let Investors across specific regions. Research highlights the North West (5.5%), Yorkshire and the Humber (5.4%), and Scotland (5.8%) as offering the highest rental yields. These areas present strong opportunities for investors seeking attractive returns. Conversely, London offers the highest rents but lower yields, averaging just 3.9%, making it less appealing for investment.

Confidence in the Buy-to-Let Market

Landlords feel optimistic due to rising house prices, growing tenant demand, and favourable economic conditions. Key factors driving confidence include house price growth (41%), tenant demand (41%), and the current strength of the economy (33%). High rental yields (26%) further enhance the appeal of the Buy-to-Let market, particularly in regions with better returns.

Two in ten landlords are funding refurbishments through short-term credit

19% of landlords surveyed are funding refurbishments with credit cards or short-term finance products
62% of landlords have undertaken a refurbishment over the last 12 months
Landlords spent over £13,000 on average on refurbishments

Two in ten landlords surveyed used a credit card or another short-term finance product to fund a recent refurbishment, according to new research by Shawbrook Bank.

Shawbrook’s Changing Face of Buy to Let report found that nearly two-thirds of landlords (62%) refurbished rental properties last year. Furthermore, 18% renovated more than one property.

Landlords often used personal finances to finance these renovations. 60% used their personal savings or investments. Additionally, 12% used a recent inheritance or windfall. Another 12% used a second-charge mortgage to finance their rental property changes.

On average, landlords spent £13K on renovations last year. Portfolio landlords, those with four or more properties, spent £17K. Popular works included repainting (37%) and fitting new carpets or flooring (28%). Additionally, 27% installed new kitchens or bathrooms. Some landlords undertook larger projects, such as kitchen extensions (14%) or loft conversions (10%). Others built a home office in the garden (8%) to meet the demand for more space for home-working and living.

For many landlords, the past year was ideal for property improvements. They experienced more gaps between tenancies. This allowed them to refurbish without causing disruption. In fact, 14% were renovated due to an extended period between tenants. However, most landlords carried out necessary work on their properties. A third (34%) said their property needed a renovation.

Landlords taking steps to improve energy efficiency ahead of new rules

New EPC regulations in 2025 require landlords to achieve a minimum rating of C. Properties with an EPC rating of D or below will no longer be rentable to new tenants. Without adequate support from the government or lenders, many landlords may struggle to meet these new standards on time.

Tenants Value Energy-Efficient Properties

Energy-efficient homes attract tenants willing to pay higher rents or stay longer. According to Shawbrook Bank’s research, many landlords are already taking steps to improve their properties’ energy efficiency. This trend is driven by the potential benefits, both financial and environmental.

Refurbishment Trends Among Buy-to-Let Landlords

The “Changing Face of Buy-to-Let Report” reveals that 17% of landlords refurbished their properties to improve energy efficiency. Portfolio landlords who own four or more properties are even more proactive, with 22% making energy-related upgrades.

Key Property Improvements to Meet EPC Standards

Landlords are focusing on specific refurbishments to enhance their properties’ energy ratings. For example:

Boilers and Heating Systems: 22% of landlords replaced outdated systems.
Window Upgrades: 23% installed new, energy-efficient windows.
White Goods: 18% replaced appliances with energy-saving alternatives.

These changes are critical for achieving the required C rating by 2025.

Increased Tenant Demand for Sustainable Homes

Making properties more energy-efficient directly impacts tenant retention and rental income. One in ten private renters stated they would stay longer if landlords made environmental improvements. Additionally, many tenants are willing to pay extra for specific upgrades, such as:

New Windows: 18% would pay higher rent.
Modern Boilers: 15% value energy-efficient heating systems.
Solar Panels: 10% believe these justify increased rent.

Energy Bills and Future Challenges

With energy prices expected to rise significantly, improving energy efficiency is becoming more urgent. Older properties with low EPC ratings face unique challenges, as improvements can be costly and complex.

Nearly 13 Million Homes at Risk

Data from the Ministry of Housing, Communities and Local Government highlights the scale of the issue. Around 13 million homes in England and Wales currently have an EPC rating of D or below. Without upgrades, these properties risk becoming unrentable and unsellable by 2025.

Why Landlords Must Act Now

Landlords should prioritise energy efficiency improvements to comply with regulations, attract tenants, and secure long-term financial benefits. Acting now ensures compliance with future rules while enhancing the appeal of their rental properties.

Government reveals the extent of the issue. Nearly 13 million homes in England and Wales have an EPC rating of D or below.

We have examined the ‘The changing face of buy-to-let‘ re-report and discussed in detail what has happened in the buy-to-let market and how it has changed, driven by various factors. Now, answer the following questions to show what you learned from this piece.

To recap, this article has helped you…

To be able to identify the value and size of the PRS market
To be able to explain how landlords & tenants have changed since the Covid-19 pandemic
To be able to explain what changes are taking place regarding EPCs and their impact

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