"This confidence is sustained by several key ongoing trends, including increasing average rental yields, a growing preference for limited company ownership, and robust tenant demand."
In the face of a challenging buy-to-let landscape, it’s a real positive to see that a strong proportion of landlords remain committed to uncovering ways to remain profitable and expand their portfolios. A commitment which is especially evident amongst professional landlords with larger portfolios.
This confidence is sustained by several key ongoing trends, including increasing average rental yields, a growing preference for limited company ownership, and robust tenant demand. These factors, coupled with a favourable interest rate environment which is currently allowing landlords to remortgage with different lenders instead of accepting product transfers, offer significant opportunities for mortgage intermediaries to expand their business and provide effective support to an array of landlord clients.
According to the Q2 2024 Landlord Trends report by Pegasus Insight for Foundation Home Loans, the current landscape remains ripe with potential. This showed that the average achieved yield continues to trend upwards and now sits at a 10-year high of 6.3%. Regionally, landlords in the North East currently generate the highest average yields, at 6.8%, whilst landlords operating in Central London achieve the lowest, at 4.7%. HMO owners and those letting to students also generate above average yields, at 7.2% and 7.0% respectively.
The data reveals a growing preference for limited company ownership, showing a significant acceleration over the past four years. In 2020, only 36% of properties owned by landlords were reported to be held within a limited company. Today, this figure has risen to 81%, with new acquisitions by these landlords almost exclusively made within such a structure. This substantial increase helps highlight the strategic advantage that many landlords perceive in this ownership model.
In addition, limited company landlords have shown robust levels of activity, with 22% purchasing new properties in the past year, compared to just 4% of unincorporated landlords. And, looking forward, two-thirds of expansionist landlords plan to make their new purchases within a limited company structure, while only 31% intend to buy in a personal name, less than half the rate of those choosing incorporation.
The report also emphasised the ongoing strength of tenant demand, with 40% of landlords rating current demand in their areas as being 'very strong' and 42% saying it was 'strong.'
Although largely ‘strong’ across the board, perceptions of tenant demand vary regionally, with landlords operating in Wales currently reporting the strongest levels of demand and landlords in the West Midlands the ‘weakest’ levels of demand in comparative terms. Furthermore, rental arrears are trending downward, currently at 28%, which is about 30% lower than five years ago.
Another positive insight from the report is that landlord expectations for the next three months are significantly more optimistic compared to this time last year across four key metrics. Specifically, the percentage of landlords who classified overall letting business expectations as ‘good/very good’ rose to 37% in Q2 2024, up from 22% in Q2 2023. Expectations for rental yields rated as 'good/very good' also increased year-on-year, rising to 36% from 33%. Similarly, expectations for capital gains edged up to 19% from 18%, and confidence in the prospects for the UK economy increased from 4% to 7%. Within this, unleveraged landlords continue to be more upbeat than their leveraged counterparts about the prospects for their own lettings business overall, while landlords looking to sell in the next year tend to be less positive across all lettings related measures.
This comprehensive data set helps demonstrate how the current buy-to-let sector is still generating a myriad of opportunities for active and committed landlords. And, by staying proactive, informed and working closely with the specialist lending community, advisers will continue to play a pivotal role in helping forward-thinking landlords thrive and maximise their investments in what remains an ever-evolving marketplace.
