A new investor survey conducted by buy-to-let mortgage specialist Mortgages for Business found that 65% of UK landlords are planning to expand their property portfolio in 2015. That’s a significant increase on the 55% who said they were looking to buy six months ago, and a sign of bigger shifts in the market this year.
Building a bubble?
In January, the likes of the Urban Land Institute (ULI) and PricewaterhouseCoopers (PwC) were fearful of the risks produced by a European property market “awash with capital”. The fear was that property prices were being artificially inflated by investors making risky investments in an attempt to counter low interest rates and find rewarding returns.
As one banker told the ULI survey: “What’s really driving all this activity is the availability of capital rather than the underlying fundamentals. It just comes down to people needing to deploy capital.” However, we’re now seeing developments in those fundamentals that suggest the price rises may actually reflect wider economic improvements.
Meanwhile, more liquid investors are seeking to ride the wave of price rises by increasing their borrowing; a move made possible by lenders loosening the purse strings and offering lower mortgage rates.
The changing landscape
2015 is a year for increased optimism, not just among landlords but in the wider housing market as well, which includes UK businesses and consumers. There’s been news of businesses planning expansion, increasing employment and offering higher pay, and they're convincing renters and buyers alike to emerge from lockdown and plan a move. This is impacting the property market by pushing house prices up and encouraging rental growth.
Optimism and positive economic stats aren’t the only things forcing prices upwards. As it currently stands, demand is outstripping supply in the property market; particularly with offices, but also buy-to-let properties.
Given that the recent Mortgages for Business survey has found that just 8% of landlords currently plan to sell property, there is scope for further rises in 2015 before the economy rebalances.
For commercial landlords seeking to expand their property portfolios in 2015, the key will be spotting value. This means knowing when supply is catching up with demand and not overpaying for assets.
Identifying trends like the three-tier recovery recently identified by Knight Frank, which suggests that rises in commercial property value are being driven by an office space shortage, will be crucial to earning solid returns on investments.
We also advise against risky borrowing. Although the spectre of interest rate rises no longer appears to be looming, any change in the fragile global economic recovery could spark a sudden shift. For the 41% of landlords who have no external income above £25k per year, that could have disastrous effects.
Weigh up the risks effectively, and we believe an expanded property portfolio can deliver results. Neglect the fundamentals, however, and you risk proving the doomsayers right.
If you need help recovering rent arrears or maintaining a healthy cashflow, contact us today to receive advice from one of our debt advisors.