Being a landlord can be a complicated business. As well as legislation which changes all the time, you have to keep on top of the housing market outlook, property management, taxation and more.
There is a lot of work involved with being a landlord and with some concerns about house prices being aired, some are asking whether now is a good time to be a landlord and continue investing in property in 2023?
We have looked at the question from all angles and come to some conclusions which are outlined below.
Property investment in the UK rests on a foundation of an imbalance between supply and demand. Put simply, this means that there are far more people in the UK looking for a home than there are available properties which can accommodate them.
This is a key consideration when wondering whether it is a good time to be a landlord. The UK is targeting the construction of approximately 300,000 homes per year at present – although that target may be diluted thanks to governmental disagreements.
However, in reality that target is never hit. In a good year there is a shortfall of at least 50,000 new homes, and most years do not even manage to get that close to the target. This means that the deficit of homes grows every year and demand increases for available properties alongside it.
A recent Hometrack report shows the effect this has had on rent as more people compete for fewer homes. Rental growth in the UK is around 12.3% on average over the last year, which translates to an average rental rise of £115 per month over the period.
Other sources show that rents in particularly strong markets are even higher than that. For example, in Manchester, rent rises as high as 23.4% have been recorded this year. Overall, Rightmove reports that demand for rental properties is up by 23% in a year – demonstrating perfectly why this is a good time to be a landlord in the UK.
Christian Balshen, a property expert at Rightmove, said: “It’s extremely frustrating for so many people in the rental market, with demand so high. The number of aspiring first-time buyers who have now had to turn to the rental market is exacerbating the situation further. We’re seeing some more properties coming to market, but nowhere enough to meet demand.”
This supply and demand imbalance also makes its presence felt when it comes to house prices. It is a legitimate concern that they may be falling slightly at the moment, but that must be placed in context when it comes to property investment in the UK.
While we may be seeing a sharper fall than any in the last 14 years as of December 2022, they are falling from record highs measured as recently as June. House prices are almost as high as they have ever been, and the ongoing shortfall of new homes thanks to missed construction targets means that there is a high floor for how low they can go.
Rightmove added: “After a very strong first half of the year, it is likely that the housing affordability crunch will have a greater impact on market behaviour in the months ahead, with further interest rate rises anticipated during that period.”
The Rightmove spokesman also goes on to note that we must take into account the usual seasonal variations that come with winter to help explain the current falls. It is likely that the market will pick up in the new year and Spring in the same way that it always does.
Are house prices likely to continue falling in 2023? Current economic conditions are wider than just the housing market and could continue to have a slight negative effect. The cost of living crisis is ongoing and energy bills show no sign of falling anytime soon as the government continues to refuse to reign in the energy companies.
These will likely have an ongoing impact on UK house prices in 2023. However, people still have a huge amount of confidence in the market as shown by recent research from Yopa. The company found that almost half of people thought it was a good time to buy property, and just fewer than 60% had confidence that house prices would keep going up in the future.
That type of confidence should be a great reassurance to property investors wondering whether this is a good time to be a landlord.
Another factor in the recent house price fall is the high cost of borrowing. Mortgage rates are much higher than they have been in previous years and it is natural that this will have put some people off and played a role in property values not growing quickly as they have been in recent years. However, even this factor appears to be reaching its natural conclusion with average borrowing rates returning to 5% from a high of approximately 6%.
Despite this, it is understandable that this current rate might put some people off being a landlord. For those worried about whether investing is less affordable and profitable than it was previously, investing off-plan may be the solution.
By investing off-plan – while a development is still in construction – you can make the most of a market that is still growing and avoid the worst of the high borrowing costs. Whether paying with cash or a mortgage, you will not have to provide the balance of the payment until the building is complete, which will be in a few years’ time.
This means that you can pay the off-plan rate now – below market prices in many cases – and pay later when borrowing costs are cheaper. This is the best of both worlds and a potential path to earning more while spending less. In particular, emerging markets like Manchester and Preston offer a chance to secure high capital appreciation and rents in the future. By choosing the right property, such as a popular three-bed apartment, you can stack the deck in your favour even more.
There is always lots to consider when you are looking to invest in property, but this is a good time to be a landlord and the underlying market realities are reassuring for investors. Demand is high and the supply of new homes is low – a combination which will continue to be favourable to landlords even in uncertain economic times.
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