Landlords optimistic about PRS after government’s EPC U-turn

Landlords optimistic about PRS after government’s EPC U-turn

0:02 AM, 22nd November 2023, About 8 months ago

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Landlords are more confident about their letting businesses and the private rental sector (PRS) after the government scrapped plans to introduce mandatory energy performance certificate (EPC) levels, a report reveals.

The findings from Foundation Home Loans are based on 785 online interviews with landlords and they reveal that landlords are expecting higher rental yields and capital gains.

They are also looking forward to a better performance from their own portfolios and the PRS.

The report also shows that fewer landlords are planning to sell some or all of their properties in the next 12 months, down from 37% in Q2 to 28% in Q3.

‘Number of factors for each individual landlord’

Foundation’s director of sales, Grant Hendry, said: “There are clearly a large number of factors for each individual landlord to take into account when looking at the performance of their own portfolio, and their optimism – or otherwise – for the future.

“However, it’s clearly good news to see a significant shift in positivity from landlords across a number of aspects, and to see confidence having risen quarter-on-quarter.

“Certainly, overall strong tenant demand is playing a major part here, as perhaps is the belief that mortgage rates may now have topped out, and that the market is finally shifting southwards, with more competitive rates meaning stronger affordability.”

He added: “The Government’s announcement on minimum EPC levels not moving up to C and above was perhaps a relief to many, particularly in the short-term, and for a number it may make the difference in terms of them staying invested in the sector.”

Landlords planning to buy more properties

The report also reveals that more landlords, especially those with larger portfolios, are planning to buy more properties in the next year.

Foundation says that 18% of landlords with more than 20 properties said they would be adding to their portfolios in the next 12 months, compared to 8% of all landlords.

One of the main reasons for this optimism is the perceived increase in tenant demand, which reached an all-time high in the report.

The findings show that 71% of landlords reported an increase in tenant demand, up by 4% since the last quarter, while only 3% reported a decrease.

Led to an increase in rents and rental yields

The rise in tenant demand, along with the ongoing supply of PRS properties, has also led to an increase in rents and rental yields.

The proportion of landlords who had seen rising rents in the last year was up 5% on the last quarter’s results, while the average rental yield increased by 0.1% to 5.3%.

Landlords in the East Midlands achieved the highest rental yields at 6.5%, while those in London (both outer and central) achieved the lowest yields, below 5%.

Landlords with the largest portfolios achieved the highest rental yields at 6.2% on average.

The report also suggests that landlords are responding positively to the government’s announcement in September not to take forward plans to introduce mandatory EPC levels at C and above for all PRS properties.

The report reveals that 12% of landlords said the announcement meant they would be ‘able to stay in the UK rental market’, although the most common response was that it would have ‘no/very little impact on their lettings businesses.

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