There is a long-held misconception that renting out property is a passive investment. But, like everything else, property management became more complicated quite quickly. Like any other investment, property has to be carefully managed if you want to get the most out of it.
Property investors who use market trends and movements to inform their investment decisions are likely to get much better returns. So, in this post we’re looking at some of the most important trends and indicators that landlords can use to make smart decisions from 2022 onwards.
Eviction Reform and Tenancy Length
The last few years have seen significant changes to eviction legislation. The Section 21 notice is all but phased out and increased tenant rights and protections all lend themselves to longer tenancy terms. Back in 2018, there was a consultation on increasing the standard tenancy length from 6-12 months to 3 years and the government issued a press release stating that this was the standard they wanted to work towards. While there are no plans to introduce a standardised tenancy length in the near future, this is the direction legislation is heading in.
Smart investors can read the writing on the wall and use this to determine the best letting model to meet their longer-term aspirations. If you’re in property for the long haul and you see yourself letting out your properties for a long time, this is likely good news. Longer tenancy terms lead to lower churn rates and therefore lower costs. Provided you have a sound vetting process and are diligent with inspections and maintenance, long-term tenants can be a boon to your business. However, if you’ve got plans to exit the PRS at a specific point, longer-term tenants might not be on your wish list. If you want a shorter-term business model you might want to consider diversifying into short-term lets, HMOs, student tenancies, or other tenancy types with naturally shorter lease periods.
Mortgage Interest and Lending Criteria
Most landlords are familiar with Section 24 which was introduced in April 2017. Since its introduction, tax relief for mortgage interest was phased out for non-incorporated landlords.
This had a big financial impact on landlords, particularly those who had made use of extensive lending to build property portfolios. As the relief has been phased out totally by this point, it means that for many landlords gearing is out and cash buying is in.
Build to Rent Growth
Build to rent is a rapidly expanding property sector. If you’ve been discounting build to rent as something that doesn’t apply to you, think again. Build to rent has largely been proliferated by large companies sinking profits into purpose built rental properties. While last year only 5% of properties were build-to-rent, Savills forecasts that there could be 1.7 million build to rent homes by 2031.
Even if build to rent isn’t something you want to get into, you should be looking over your shoulder at where build to rents are going up in your area because they will represent fierce competition within the private rental sector.