The landlord industry within the UK is a rapidly growing sector; in the 2021 census, there were over 5 million landlords, and the rental market has seen consistent growth over the past decade. However, the average rental price in the UK is down 0.2% since December 2022 at £1,172 PCM.
Jonathan Christie, the Chief Executive Officer of The Property Sourcing Company, a Below-Market-Value property investment source based in the UK, suggests that average rental prices will increase by up to 10% in 2023 for three reasons; Inflation, lack of supply and rising interest rates.
He says, "High inflation will affect everything, including the rental market, as homeowners are finding it harder than ever to secure affordable mortgage terms and are therefore selling up and finding tenanted properties to live in at a fraction of the price. Although many landlords may look to sell due to rising costs, many of these properties may not find their way back into the rental market, as first-time buyers often snap them up as the market is already constricted. Rising interest rates pressure landlords as they often need to increase rents in line with borrowing costs. This could work out for the landlord as they will have higher future sale prices."
On the other hand, Karl McArdle, Co-Chief Operations Officer of The Property Buying Company, a UK-based cash-buyer, warns that landlords should be wary of the changes to tax relief rules, as some landlords may face higher bills, as additional or higher-rate taxpayers can no longer claim a return on their mortgage repayments.
He also predicts that rental prices will increase dramatically in 2023, especially in London, as mortgage rates for landlords catapult. But, they suggest that the UK's property market will demand more rental properties as some people unable to afford mortgage payments are forced to turn to the rental market.
Both companies agree that for landlords to benefit from the current rental market, they should look to ensure they are offering competitive rental rates for their area, stay up-to-date on any changes to regulations, utilize technology like smart home systems to limit energy bills and develop a healthy network of contractors who can easily make repairs.
A few regulation changes for 2023 to look out for include; the end of the second home tax 'loophole', commercial EPC rating minimum increase and the renter's reform bill.
The rental market should have a strong year due to rising inflation and interest rates. However, landlords must be prepared to make the necessary adjustments to keep up with changes in taxation and property trends. Landlords must also ensure they remain attractive to potential tenants by using incentives like smart homes, access to gyms and creating strong relationships to keep tenants from moving out, despite rising energy bills and a cost of living crisis.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.