2022 set to be a strong year for BTL

It is hard to make predictions for the coming year without considering the impact of the pandemic.

2022 set to be a strong year for BTL

Andrew Ferguson is managing director of the buy-to-let division at West One Loans

It is hard to make predictions for the coming year without considering the impact of the pandemic. With vaccination levels increasing and hope that new COVID variants are less aggressive, light is appearing at the end of the tunnel as we hopefully transition back to normality.

Looking back, the past year has been one of the most turbulent for the buy-to-let market with the pandemic causing some landlords and renters to struggle financially.

Despite the challenges, the buy-to-let sector has been incredibly resilient in 2021 and looks set to achieve around £41bn of loans in 2021.

The market is predicted to be relatively stable with IMLA forecasting £40bn of loans in 2022, and one of the key drivers will be the expected increase in rental yields.

Rent looks set to rise

When considering the direction of rental prices in 2022, it is useful to look at the recent trends. According to Zoopla, a combination of high demand and landlords exiting the buy-to-let sector pushed rental price growth to a 13-year high during Q3 2021.

Zoopla also reported that rental growth across the UK reached 4.6% between July and September, with particularly strong markets in the South West, Wales, and the East Midlands.

But the more difficult question to answer, is which direction will rents take in 2022? Zoopla’s rental market forecasts have predicted average rental prices across the country could rise by another 4.5%, and growth in London is forecast to reach 3.5%, exceeding pre-pandemic levels. It also has predicted rents could rise above earnings in areas of the country where it’s currently cheaper to rent.

These rises in rents are fuelled primarily by an imbalance in supply and demand, with far more people looking for rental properties than there are places to accommodate them.

Energy efficiency

Outside of rent prices, three letters will likely dominate landlords’ thoughts in 2022. No, not VAR, we are of course referring to EPC.

The government’s plans to increase minimum energy efficiency standards has certainly impacted some landlords plans for the future.

The signs have all been pointing in one direction for some time, as since April 2020 it’s been illegal for landlords to let properties with an EPC rating of F or G, unless they have an exemption.

These measures will be ramped up in the coming years. From 2025, the minimum standard will be increased to C for new tenancies and this will be extended to existing tenancies from 2028.

Government estimates suggest that over three million rental properties currently have an EPC rating of D or below. As a result, many landlords will need to start begin the process of improving their energy efficiency ratings in 2022.

Tied to this push for more environmentally friendly housing is the trend for green mortgages, which is almost certainly set to continue in 2022.

These products, which reward properties with EPCs of A-C are becoming increasingly popular as awareness continues to build. At West One, we recently launched our ‘Funding the Future’ campaign, through which we launched a series of new products across our entire range.

These are for landlords with existing properties with EPC ratings of A-C and those looking to make upgrades to a property.

Refurb-to-let

With house prices rising at unprecedented levels, some of those looking to invest in a buy-to-let are being priced out of the market.

Therefore, some landlords who are either handy themselves, or have a team of tradespeople on speed-dial are looking for more affordable properties that need some refurbishment. Whether this is a new bathroom, modernising a kitchen or even converting a property into a House in Multiple Occupancy (HMO).

For more ambitious landlords, the high-street may present some opportunities. As we are transitioning away from the traditional shopping experience with more and more people choosing to shop online, there will be commercial spaces that could be converted into residential properties.

Specialist sectors set to grow

This brings us on nicely to another area of interest for 2022, specialist properties. Despite doubts at the start of 2021 about the viability of HMOs due to concerns around the coronavirus, HMOs have been popular throughout the year.

The motivating factors behind renters choosing HMOs will still be highly relevant in 2022, with the social and financial benefits still applicable.

From the landlords’ perspective, HMOs offer increased yields with slightly less risk attached as if one tenant leaves, others will still be paying rent.

Alongside HMOs, holiday lets have been increasing in popularity as well, partly in response to the staycation boom. With international travel looking set to be restricted again in 2022, this trend should continue and more landlords may jump on this bandwagon.

5-year fixes coming to maturity

In 2017 new underwriting standards were introduced by the Prudential Regulation Authority and this resulted in a spike in borrowers opting for longer term products.

As 2022 marks five years since the new standards were introduced, a notable number of these longer-term mortgages may mature in the next 12 months, presenting a great opportunity for lenders and brokers.

There is hope on the horizon for an end to the pandemic and the restrictions it imposed. This wave of optimism extends to the buy-to-let sector, as rents are expected to rise, there are new opportunities for specialist properties and remortgages, therefore 2022 looks to be another strong year for the buy-to-let market.

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