Are investors expanding their portfolios in 2019?

Are investors expanding their portfolios in 2019?.jpg

As a range of factors continue to impact the rental market, we take a closer look at the figures to see whether landlords are buying or selling investment properties this year.

The majority of landlords would agree that rental property market conditions are particularly unusual this year. Alongside the unprecedented Brexit situation causing uncertainty, landlords are also having to contend with a range of tax and regulatory changes. And all of this is taking place at a time when more people are renting privately than ever before. This complicated combination of circumstances leads naturally to numerous questions, one of which being: is now a good time to expand a rental property portfolio? It’s time to figure out what other landlords think and what’s really going on in the market…

Some landlords are exiting the buy-to-let sector

Due to the challenges outlined above, industry commentators have been predicting for some time now that many landlords will be forced to sell up as letting property becomes less financially viable. In recent months, there have been various studies and surveys to suggest that landlords are selling properties. ARLA Propertymark said at the end of March that landlords have been increasing rents as an exodus of investors continues. The trade association reported that very few new properties came to the market in February as existing landlords look to reduce activity and new landlords are discouraged from entering the market.

"We warned this would happen, as landlords continue exiting the market and increasing legislation deters new ones from entering," said David Cox, ARLA Propertymark chief executive.

"Unless the government commits to making the prospect of investing in the PRS more attractive, and introduces measures to increase supply, tenants will only continue to feel the burn."

The association went further this month, reporting that the number of landlords offloading properties in London in February was 125% higher than the national average. Research shows that the average agency branch was marketing nine buy-to-let properties, compared to a national average of four. What's more, late last year, 78% of ARLA Propertymark members predicted that the number of landlords operating in the rental sector would dip in 2019. The letting agents' prediction seems to be ringing true in some quarters, with a significant number of landlords deciding they've had enough, but are some investors taking the opposite approach?

Optimistic landlords still looking to expand

Despite the doom and gloom in some sections of the market, there are many landlords out there who are keen to expand their portfolios this year, rather than selling up or even just sitting tight. A recent survey of more than 500 landlords, carried out by Experience Invest, found that 39% of respondents are planning on expanding their portfolios this year, compared to 11% who intend to reduce theirs. The study shows that landlords in London, Manchester, Liverpool and Nottingham are most keen to acquire more properties, while those in Sheffield, Edinburgh and Glasgow are less enthusiastic. Many of those surveyed said they were considering investing in houses instead of flats, while new build properties and student accommodation were also popular choices. It's likely that these optimistic investors will be looking to capitalise on those who have lost faith in the buy-to-let sector. For landlords looking to expand their portfolios, there will be no better target than existing rental properties. These homes are tried and tested in the rental market and may also be available at a lower price if owners are looking for a speedy departure from the sector.

The pros and cons of expanding or reducing a portfolio

As we can see, the figures paint various pictures as to whether landlords are looking to buy or sell this year. It is therefore fair to deduce that the decision to expand or reduce activity will rely on a landlord’s individual circumstances. There’s no denying that market conditions are tough as the cost of letting property continues to rise, with more obstacles on the horizon in the form of the tenant fees ban and further reductions to buy-to-let mortgage interest tax relief. However, Brexit uncertainty has slowed the sales market so offloading a property may take longer than usual. And with no sign of rising tenant demand slowing anytime soon, there are still plenty of opportunities for landlords to generate solid returns if they have the right mortgage deal in place and invest in the best areas. Whatever you decide to do this year, it’s important that you take some time to assess your options, do your research and seek advice from a range of property experts to give you the best possible snapshot of the current rental market.

Tracey Hanbury

Read more in issue 45 of Li Magazine