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Reasons to invest in buy-to-let in 2023

Reasons to invest in buy-to-let in 2023

Where some see doom and gloom in the rental market others see opportunities

As reported by Melissa York in The Times

We are in the midst of a rental crisis: investment in private rental properties has stagnated while demand from tenants has shot through the roof, pushing rents skyward – but have reports of the deal to buy-to-let been greatly exaggerated?

Landlords have been selling up. A significant number of them undoubtedly took advantage of the pandemic’s red-hot sellers’ market – fueled by Rishi Sunak’s stamp duty holiday. Now proposals to make it harder to evict tenants, and a requirement for costly eco-grades by 2030, are worrying landlords. Rising interest rates also mean the numbers simply do not add up for many. Facebook groups of small-time landlords are asking whether it is worth it any more.

The answer is still “yes” for a surprising number. In 2022 12.2 per cent of properties sold in Britain were bought by an investor, the highest proportion of sales since 2016, and up from 11.7 per cent in 2021. Meanwhile the number of landlords registering with lettings agencies is up 9 per cent, with investors – priced out by the high house-price growth in the past couple of years – seeing an opportunity now property prices are falling.

Perversely, low sentiment among landlords is the reason that investment in rentals could continue to increase in 2023, according to Rob Dix property investor and author of The Complete Guide to Property Investment. He says: “Historically the best time to invest is when people are the most negative. It means there’s limited competition and the opportunity to do strong deals. This is a complete contrast to the first half of 2022, which was great if you already owned property, but made it extremely difficult to buy anything at a good price.”

At the end of last year there was a huge spike in rental demand as professional city-dwellers returned from working from home in the country to their offices in cities. The return of tenants, coupled with stagnant investment in private rentals led to average rent increases of 7.9 per cent in Britain last year. It’s possible that investors may outnumber first-time buyers in the coming months, rising rents are tempting landlords to dip a toe back into the slowing sales market to try and pick up deals they couldn’t have got six months ago. With sellers more open to negotiation and rents rising rapidly, returns for equity-rich landlords have been rising.

The stock shortage and rising costs associated with being a landlord, including higher mortgage rates, means rents are forecast to keep rising throughout 2023, with predictions from 5 per cent to 6.5 per cent.

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