Market Watch

Why things are looking up for landlords in 2024

Article from The Times Online Newspaper –

After a miserable 2023, landlords are finding plenty of reasons to be cheerful in the next 12 months — so will buy-to-let make a comeback?

While 2023 was dominated by talk of a landlord exodus, 2024 could be the year buy-to-lets are back. Ever since restrictions on tax relief on buy-to-lets were introduced in 2015, private landlords have been selling properties more than investing in them.

It’s easy to see why. A harsher tax and regulatory regime, until recently combined with soaring house prices, had pushed down yields.

Then last summer, inflation sent buy-to-let mortgage rates soaring to almost 7 per cent, which in turn pushed many small-time, highly leveraged landlords into the red.

“Buy-to-let has had a rough ride over the last few years,” says Aneisha Beveridge, head of research at estate agency Hamptons.

Once total sales are totted up, Hamptons estimates about 139,000 rental properties were sold by private landlords in 2023.

Yet for those who have been able to reinvest, the average gross yield for new buy-to-let purchases in England and Wales reached a record 6.9 per cent last year. While this is only 0.3 percentage points higher than 2022’s average, it marks a significant leap in the lettings market — a market in which, historically, yields barely move.

This partly reflects how much rents have outstripped house prices in the past year. The demand/supply imbalance means private rents in the UK increased 6.1 per cent in the 12 months to October last year, while house prices decreased 1.2 per cent, according to the Office for National Statistics.

Beveridge says: “We think rents will rise more than four times faster than house prices between 2023 and 2026. Furthermore, with the Bank of England poised to cut the base rate this year, savings rates will likely follow suit.

“This may see more investors look past the regulatory and wider economic uncertainties, and return to bricks and mortar in the hope that rents continue climbing and house prices move back into positive territory.”

#Local authorityAverage rental yield in 2023YoY Change
3Merthyr Tydfil9.9%0.9%
4Rhondda Cynon Taf9.8%0.6%
5Blaenau Gwent9.7%0.3%
6South Tyneside9.7%0.7%
8County Durham9.7%0.4%
9Neath Port Talbot9.6%0.7%
15St. Helens9.2%1.1%
Table: The Times and The Sunday Times  Source: Hamptons & Land Registry

The London-based estate agency Chestertons predicts rents will rise 6.5 per cent this year. It agrees that rising yields and falling house prices are enticing more landlords back to the rental market.

Another reason yields have increased is the shift from investing in expensive properties in London and the southeast to cheaper investments elsewhere.

Analysis from Hamptons shows that the 15 locations with the strongest rental returns are in Wales and the north of England.

Ceredigion on the west coast of Wales has the highest average yield, at 10.8 per cent (up 3.8 per cent in a year). Gateshead in Tyne and Wear is second, with an average yield of 9.9 per cent.

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