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 the summer of 2022, will 2023 be a good year to invest?
We believe it could be – depending on what you are looking for from property investment. Although average capital values are predicted to fall this year, this is of 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 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 why we believe this year could be a great time to either enter the rental market or expand your existing portfolio:
Rents have been rising very well over the past couple of years, for the simple reason that there is a huge amount of demand from tenants and simply not enough available accommodation. This competition for new lets has pushed prices up, as many tenants have been prepared to pay over the advertised rental amount to secure a decent home.
Nevertheless, it’s still important to research supply and demand in your own area, to make sure 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, such as ourselves, to ensure your buy-to-let has good long-term prospects.
Some buyers get nervous when property price growth slows, especially with media news 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 just 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 reduction in price. And whatever discount you manage to get translates to instant equity in the property and can improve the property’s income returns too.
While some landlords are selling up because of the legislative and tax changes that have affected buy-to-let over recent years, others have simply reached the end of their investment strategy and had always planned to sell around now.
Buying a property that’s 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.
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.
So if you can buy either a new build that’s got the latest eco systems and fittings already 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.
With the Government finally publishing its long-awaited White Paper, ‘A Fairer Private Rented Sector’ last June – which includes proposals for new tenancies to have a minimum ‘C’ EPC rating in the next couple of years - we can expect regulation of the private rented sector to tighten.
Knowing about potential upcoming changes gives you the 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 important to make sure any offer you make is affordable and there shouldn’t be any problem securing a mortgage. If you’d like to have a chat about financing options in the current market, you can contact our sister company, Mortgage Scout, for a free, no-obligation consultation.
And if you have any queries about investing in buy-to-let or you’d like to find out more about the property market in your area, just get in touch with your local expert.
Looking for advice?
If you're looking to let or sell your property, we can help. Get in touch with your local branch or book in for a property valuation.