What can buy-to-let landlords expect from the rental market in 2023 after another year of highs and lows?
Here are our predictions, from rising demand to high mortgage rates to rental reforms and landlord licensing.
Are buy-to-let landlords planning to purchase or sell rental properties in 2023?
You should consider many factors before expanding or reducing your portfolio when buying or selling a rental property.
The following factors may encourage landlords to sell up in 2023:
Mortgage rates are rising
Changes in capital gains tax
Regulations are being tightened
Alternatively, some landlords may want to purchase a property because:
Rental demand is high
Rents are rising on average
Property prices are lower on average
Property turnover could be high in rental properties
49 percent of landlords had sold a property in the last year or planned to sell in the future, according to Simply Business research from March 2022. In 2022, 23 percent of respondents plan to buy another property.
Personal circumstances determine whether a person should buy, sell, or keep their portfolio the same size. Due to the reasons outlined above, many rental properties will likely change hands in 2023.
Will rental demand and prices keep rising?
The demand for landlords’ properties remains high and shows no signs of slowing down.
The cost of living crisis is causing up to a million people to rule themselves out of the first-time buyer market in the coming months, according to Aviva research. Therefore, rental demand will remain high in 2023.
The average UK rent in November 2022 (at £1,175) was 11.1% higher than 12 months earlier, according to HomeLet data. Every region of the UK has seen an increase in rental growth according to HomeLet’s rental index.
In 2023, landlords will have the opportunity to generate a high rental yield if demand remains high and prices rise.
Due to high demand for rental properties, landlords benefit from shorter void periods, a greater selection of tenants, and possibly lower advertising costs.
Rising mortgage costs will continue to affect landlords
Mortgage costs increased following the controversial mini-budget in September. For much of 2022, inflation and interest rates rose.
As expected, interest rates rose in 2022 – the Bank of England increased the base rate eight times to 3.5%. However, prices weren’t expected to rise as much as they did.
The financial markets have calmed since Rishi Sunak became prime minister. Despite more buy-to-let products returning to the market, Moneyfacts reports that the average cost for fixed deals is still over 6%.
In 2023, landlords who are buying or remortgaging a property will continue to face rising costs.
Dates and details of rental reforms could be released
By 2022, landlords should have more clarity about rental reforms.
The long-awaited white paper was published in June, but we still don’t know when and how the following reforms will be implemented:
The scrapping of Section 21 evictions
Private rental properties will be subject to a Decent Homes Standard
Tenant pet ownership should be encouraged
Could 2023 be the year landlords get more details, dates, and clarity on rental reforms?
Industry stakeholders welcomed Michael Gove’s return to government under Rishi Sunak, as they believed he could continue where he left off before being sacked by Boris Johnson in July.
In addition, there is already a consultation on introducing a Decent Homes Standard for private rentals.
It’s unlikely that any measures will become law in 2023, but more details and proposed dates may be released. It appears that the government will focus first on scrapping Section 21 evictions.
Energy efficiency to remain high on the agenda
Increasing rental property energy efficiency is more important than ever in the face of rising costs and climate change.
Landlords and tenants are aiming to improve energy efficiency and keep bills down in light of rising energy costs.
Energy Performance Certificate (EPC) ratings for rental properties will rise from ‘E’ to ‘C’ in the near future. There is no clear timeline for introducing the new rules, however.
In a study by Shawbrook Bank, 73 percent of landlords said the government failed to communicate the proposed changes to EPCs.
Research conducted by Simply Business found that 55 percent of landlords would have to make improvements to their properties if the minimum EPC rating was raised. It is estimated that 46% of landlords will have to pay more than £5,000 as a result of this.
Recent details about the government insulation scheme have been revealed. Energy efficiency improvements are being offered to homeowners in lower council tax bands and with low EPC ratings under the scheme to the tune of £1 billion.
More landlord licensing schemes could be on the way
The number of landlord licensing schemes has increased in recent years, and this trend appears to be continuing.
If a landlord wishes to rent out a property in a specific area, local councils can make it mandatory for them to obtain a license.
It is estimated that more than 50 new licensing schemes and consultations will be launched in 2022, according to technology firm Kamma. Compared to 2020 and 2021, this figure is higher.
New schemes launched across the country in locations such as:
Sandwell (West Midlands)
There are currently plans for new or expanded schemes in areas including:
Call for increased licensing
In a letter to Housing Secretary Michael Gove, the Chartered Institute of Environmental Health predicted an increase in new licensing schemes in 2023.
Organizers urged the government to make selective licensing easier for councils.
By 2030, the government aims to halve the number of non-decent homes across all types of housing through increased landlord licensing.
Will there be a crackdown on short-term lets?
By 2023, the government may take action to regulate the short-term rentals market.
The number of short-term lets has increased dramatically in recent years. The number of holiday homes let in the UK increased by 102 percent between 2018 and 2022, according to Quotezone.co.uk.
Short-term and holiday rentals are often criticized for taking away long-term housing from private tenants, resulting in higher rents.
In addition, short-term letting landlords are not subject to the same level of regulation as traditional landlords.
Michael Gove announced in December that he would open a consultation on whether properties let on platforms like Airbnb should require planning permission in summer 2022.
It is likely that the consultation will take place in 2023 and that recommendations will be made before the end of the year.