The start of a new year is always a good time for property investors to take stock and decide where their portfolio should go in 2018.
Living habits are changing, as are tenant preferences. These, along with increased government pressure for landlords to be much more professional, all combine to influence the UK’s buy-to-let sale over the next year.
Anyone thinking of investing in a property, or number of properties for the purposes of renting out, should be aware of the seismic changes in living habits and consumer preferences affecting where and how people want to live.
City centre living increasingly popular
People still want to live in city centre apartments, although tenants are increasingly demanding a different utilisation of space. They’re looking for more innovative ways to live, and are increasingly demanding that the quality of apartments is higher.
This essentially leads to tenants challenging the established norm of traditional one and two-bedroom apartments. The rental market for two-bed city centre apartments have historically been concerned with three different kinds of buyers:
- Families and couples who need two separate bedrooms.
- Older professionals who have more money and like to have two bedrooms.
- People living together to save costs and because they can’t afford one bed accommodation.
The third category represents about 50% of people currently renting two-bed city centre dwellings. And it’s this group that is changing the most. Increasingly, they are moving away from two-bedroom apartments and looking for one-bed living spaces.
While it has generally been the case that young professionals team up with friends to rent a shared house or apartment, today more of this specific demographic want their own space and are prepared to pay for it. In cities where demand continues to outweigh supply, there will be increased pressure on one-bedroom apartments.
City over suburb
Quality family housing has historically been in short supply in city centres, moving many larger groups out to the suburbs. However, as cities across the UK continue to invest in better leisure, commercial and entertainment facilities, more families are leaving commuting behind and embracing city living. This is upping the demand for three and four-bedroom town houses in city centre locations. We are seeing massive demand for competitively priced developments like this from a much broader range of buyers than before.
There has also been an upsurge in groups of wealthy young professionals and students who want to live communally, but in higher quality accommodation. For example, four young professionals happy to pay £750 per room can enjoy the high quality four bed town house that would rent to a family at £3,0000 per month.
These are the reasons that industry analysts are predicting that the UK’s top 20 cities will deliver price growth of 5% during 2018. This is compared with a prediction of 3% for the overall housing market.
New challenges for landlords
On the other side of the coin, away from the needs of the consumer, landlords are faced with new challenges. Accessing enough finance has become more difficult for man, following the government’s tax measures introduced in 2017. These are aimed at encouraging responsible, professional, incorporated landlords to buy into the rental market, and increase the quality of service for the UK rental market.
This has led to lots of private landlords incorporating their portfolios, so they can maximise the tax relief. However, the market has been slow to adapt, and many mortgages are available on far less favourable terms than before. Being able to access competitive mortgages is obviously key to the future of many UK investor landlords, and these changes have led to a bottle neck in completions across the whole country.