Every year, those thinking about investing in property for the first time, and even current landlords, ask themselves whether it’s the right time to expand their portfolio if they can. So, given that annual price growth has been slowing since summer 2022, will 2023 be a good year to invest?
It could be – depending on what you are looking for from property investment. Although average capital value is predicted to fall this year, this is on the back of double-digit market growth for many properties through the pandemic and is expected to recover well within five years. In addition, rents have been rising strongly for most properties due to a lack of stock. And given that buy-to-let (BTL) is a longer-term investment strategy, slower property price growth, coupled with strong rental growth, could work in new and existing landlords’ favour.
Here are five reasons we believe this year could be a great time to either enter the rental market or expand your existing portfolio:
1. There’s a significant shortage of rental stock
Rents have been rising very well over the past couple of years, for the simple reason that there is a considerable amount of demand from tenants and simply not enough available accommodation. This competition for new lets has pushed prices up, as many tenants are prepared to pay over the advertised rental amount to secure a decent home.
Nevertheless, it’s still essential to research supply and demand in your area to ensure that the property you buy will not only let well in the current market but also into the future. Tenant types can vary enormously from one part of a town or city to another, so work with local experts to ensure your BTL has good long-term prospects.
2. A slowing market can create opportunities to pick up a bargain
Some buyers get nervous when property price growth slows, especially with media reports that there may be a crash on the way. But from a property investor’s perspective, this can enable you to buy a property from a seller at less than the ‘true’ market value to achieve a speedy sale.
That could be because sellers may be struggling to pay higher mortgage rates or need to get hold of the equity that’s tied up in their home; they might be separating from a partner; they may have got a new job and need to relocate as soon as possible – you need to find these motivated sellers.
If you can offer them a quick deal that enables them to get on with their lives, that gives you some bargaining power to negotiate a price reduction. And whatever discount you get translates to instant equity in the property and can improve the property’s income returns too.
3. Landlords exiting the market offer opportunities to buy with ‘instant cashflow’
While some landlords are selling up because of the legislative and tax changes that have affected BTL over recent years, others have reached the end of their investment strategy and had always planned to sell around now.
Buying a property that is up to scratch from a legal letting perspective with sitting tenants means you don’t have to invest any capital in getting it ready to rent and could get rental profit from the first month of ownership.
4. Energy-efficient homes can attract the best-paying tenants
With a government target of net zero carbon emissions by 2050 and a widespread focus on slowing climate change – especially among the younger generation – properties that are cheaper to heat and kinder on the environment are particularly appealing to tenants.
If you can buy a new build with the latest ecosystems and fittings installed or a property you can renovate to incorporate low-carbon heating and other ‘green’ features, you’re likely to attract the best-paying tenants. And you may even be able to get funding to help with the cost of improvements.
5. You can get ahead of upcoming legislation
The government finally published its long-awaited white paper ‘A Fairer Private Rented Sector’ last June. It includes proposals for new tenancies to have a minimum EPC rating of ‘C’ in the next couple of years. We can expect regulation of the private rented sector to tighten.
Knowing about potential upcoming changes gives you a chance to buy something now that is already compliant with those proposals or carry out any necessary works before you bring the property to the lettings market.
As with any purchase, it’s essential to make sure any offer you make is affordable, and there shouldn’t be any problem securing a mortgage.
Emma Wells is managing director, lettings (north), at Leaders, part of the Leaders Romans Group
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