Property expert and Director of Stanford Estates, James Nicol, shares his take on the buy-to-let market in 2023.

The cost-of-living crisis has impacted all aspects of society, but has hit the real estate industry especially hard. Despite rental prices rising and the potential for higher yields, many buy-to-let landlords are hanging up the keys and selling up.

Director of Stanford Estates James Nicol reveals why prospective landlords shouldn’t be put off by the current buy-to-let climate, and what needs to change for landlords.

Buying into buy-to-let

While there’s no denying that the current buy-to-let market is more volatile than in decades past, it can still prove to be a worthwhile investment for prospective landlords.

Higher yields expected

Experimental statistics from the Office of National Statistics (ONS) show that the UK annual private rental price percentage change rose to 4.9% in the 12 months to March 2023.

As a result, landlords can charge a higher rent on their properties to keep in line with national rental price percentage changes. This in turn increases the yield that landlords can expect to receive from their buy-to-let property.

The demand for rental properties is high

From February 2022 to February 2023, properties in England saw a huge 6% price increase. In the midst of a cost-of-living crisis, renting offers those who cannot afford to compete with the cost of buying a home another alternative. However, the result is a perfect storm for renters: the availability of rental homes is low and demand is high.

As Nicol explains, “Unfortunately, the nationally reported increases do not begin to tell the whole story. With a falling number of rental properties becoming available, would-be renters are finding that the competition to find a new home is fierce. As a result, many landlords have seen the value of rental offers increase in excess of 25% compared with 2021.”

The UK desperately needs a higher volume of rental properties and the result would be a win-win: landlords get to benefit from a stable investment, while renters will benefit from an increased supply.

More stable than shares and other investments

It’s no secret that shares and the stock market can be volatile at best – with many notable examples of plunging share prices. While all investments come with an element of risk, investing in property is a far more stable option in the long-run.

According to Nicol, “For the last few years concerns over the future of house prices, the political climate and economic outlook have all caused deterrents for potential property investors. However, a change to the sales market now means that many vendors are willing to negotiate and listen to lower offers.

Additionally, the increase in the value of rent has meant that now could be one of the best times to enter or re-enter the BTL/investment market.”

What changes need to be made to buy-to-let?

The media often focuses on landlord horror stories, where rogue landlords unfairly treat tenants and care little for their welfare and quality of life. However, this is a very small minority and not representative of the majority of buy-to-let landlords.

While the proposed Renters’ Reform Bill rightly focuses on protecting tenant rights and wellbeing, more needs to be done to protect landlords who genuinely care for their tenants. Ultimately, landlords understandably want the security of control over their investments.

As Nicol explains, “I believe the industry would be better served by making it mandatory for all landlords to have to apply for a landlord’s license, regardless of the size of the property or number of tenants. Much like the EPC database, a tenant would then be able to log on and check whether a property is compliant and its overall rating before finding themselves in a substandard property.

Finally, enforced penalties must be levied on those landlords who do not comply with the relevant obligations and legislation.”