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

Buy-to-Let Investors

Buy-to-let investors | 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 Private Rented Sector (PRS) value in England, Wales, and Scotland grew by 5.8% to £1.4 trillion last year. Since the first national lockdown, house prices have rebounded rapidly. In March 2021, house prices grew by 9.9% annually as the Stamp Duty holiday boosted confidence among Buy-to-Let Investors.

Investor-favoured buy-to-let properties Also experienced significant price increases. The average buy-to-let property across the UK rose by 5.6% to approximately £258,900 by December 2020. The past eighteen months have greatly impacted the PRS, which has already been affected by taxation and regulatory changes in recent years. Some landlords chose to leave the market, leading to a contraction in the PRS size last year.

Moreover, many tenants returned to family homes during the pandemic, moved to get more space, or utilised the Stamp Duty holiday to become homeowners. This shift impacted choices available to Buy-to-Let Investors. Therefore, the reduction in the PRS size over the last year isn’t surprising—however, the outlook points to growth.

The Private Rented Sector (PRS) value in England, Wales, and Scotland grew by 5.8% to £1.4trn last year. Since the first national lockdown, house prices have rebounded at a pace. March 2021 saw house price growth of 9.9% yearly as the Stamp Duty holiday boosted confidence and demand among Buy-to-Let Investors.

Tenant demand has been growing, presenting opportunities for Buy-to-Let Investors. In total, 42% of landlords reported increased property demand in the past 12 months. Additionally, two-thirds (67%) of landlords feel confident about the property market’s future over the next twelve months. A third (34%) of landlords plan to buy property in the coming year to meet investor needs.

As house prices rise, more people rent longer, benefiting Buy-to-Let Investors. Half (49%) of renters expect to rent for the rest of their lives. Affordability is a key reason behind this trend. However, many choose to stay renting for more flexible lifestyles, influencing Buy-to-Let Investors’ decisions. In total, 10% prefer the reduced responsibility of renting, while 7% find renting allows them to live in better locations.

Landlords, including Buy-to-Let Investors, feel confident about the property market due to house price growth (41%), increased tenant demand (41%), the economy’s strength (33%), and current high rental yields (26%). Shawbrook’s research reveals regions where Buy-to-Let Investors can achieve high rental yields.

The highest rental yields are in the North West (5.5%), Yorkshire and the Humber (5.4%), and Scotland (5.8%), making these regions attractive for Buy-to-Let Investors. Conversely, while London may generate the highest rents, yields for London buy-to-let properties are among the lowest at 3.9%, below the UK average, making it less appealing for investors.

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 for these renovations. 60% utilised 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.

In conclusion, the past year saw significant refurbishment activity among landlords. This trend reflects a broader shift in the UK mortgage market.

Landlords taking steps to improve energy efficiency ahead of new rules 

17% of buy-to-let landlords have refurbished their properties last year to improve energy efficiency.

From 2025, new EPC regulations will require landlords to have a rating of C or above to rent. Without support from the government and lenders, many landlords could struggle to meet these standards in time.

Tenants are more likely to pay more or stay longer in energy-efficient properties.

According to Shawbrook Bank research, landlords, including buy-to-let investors, are already working to improve energy efficiency before 2025. The upcoming rules will prevent properties with an EPC rating of D or below from renting to new tenants.

The “Changing Face of Buy-to-Let Report” found that 17% of landlords, including buy-to-let investors, have enhanced their properties’ energy efficiency. This number increases to 22% for portfolio landlords who own four or more buy-to-let properties.

For example, among landlords who have undertaken refurbishments, 22% have replaced the boiler and heating system. Additionally, 23% have replaced windows, and 18% have installed new white goods. These actions can significantly improve a property’s EPC rating, helping landlords, particularly buy-to-let investors, achieve a rating of C or above 4o

Moreover, making properties more energy-efficient can boost tenant demand, including buy-to-let investors. Indeed, one in ten private renters said they would stay longer if their landlord made environmental improvements.

Tenants are also willing to pay more rent if landlords, especially buy-to-let investors, make certain changes. 18% of tenants said they’d pay more for new windows. Additionally, 15% would pay extra for a new boiler and heating system. Moreover, 10% suggested installing solar panels would justify a higher rent.

With energy bills predicted to rise significantly next year, improving energy efficiency benefits both the environment and tenants. This includes buy-to-let investors who save a substantial amount. However, landlords with older, less efficient properties face challenges. Improving their energy rating can be difficult.

By 2025, some properties might become ‘unrentable’ and ‘unsellable’. This is particularly true for those with low energy efficiency. Data from the Ministry of Housing, Communities and Local Government reveals the extent of the issue. Currently, nearly 13 million homes in England and Wales have an EPC rating of D or below.

connect for intermediaries

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 your learning 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