Will 2023 be the Year You Decide to Invest in Buy-To-Let?

The suggestion that you might invest in buy-to-let in 2023 might seem like a bad Christmas cracker joke.

As 2022 passes into history, the private rented sector has been in a state of flux – along with so much else. As problems piled up, there have been many stories of landlords and other investors quitting the sector.

As we’ve discussed in our blog ‘The Impact of Buy-to-Let Interest Rates on the PRS’ there was a period of panic in September and October 2022 around interest rates and the economy as a whole.

As experienced property professionals, who deal with buy-to-let properties constantly, let’s take a look at where the property market is and whether in fact this is a good time to invest in buy-to-let?

Where are we right now?

In a word, ‘stable’. Since Jeremy Hunt took over as Chancellor, he and Sunak’s government has sought to placate the markets; something they have largely achieved.

While it’s easy to dismiss macroeconomics as irrelevant to day-to-day life, the fact is they do matter. In this case it has allowed lenders to reassess the risks in the UK market and amend their rates and lending criteria accordingly.

On the back of the base rate increase, all borrowers are seeing higher interest rates but those rates have stabilised and there are a range of products on offer at present, with reasonable rates and sensible lending criteria.

These changes and the resulting predictability will make it easier for those who decide to invest in buy-to-let in 2023.

Looking forward

What can we reasonably expect from the coming year in the private rented sector after a difficult 2022?

Property prices

The expectation within the market is that 2023 will see fewer properties selling much above house report prices. This may be the case, however as long as there is a systemic shortage of housing, pressure on prices will remain.

There has been much talk of landlords quitting the market, possibly too much talk as we discussed in this article, ‘What you Should Know when Deciding to Exit the Property Market’.

Yes, landlords are exiting the market, but remember that they always do, as some decide to realise the value in their property at retirement for instance. Whether lots of landlords are exiting is a different question.

Some of those properties may well be sold as tenanted properties and therefore have no effect on the total number available. Others may be lost to the private rented sector.

It’s also worth noting that areas such as Aberdeen and Dundee, which we have reviewed recently, are showing lower property prices but not lower demand for rented properties.

Any potential investor, especially those looking to the longer term, may find the combination of suppressed prices and continuing demand to be in their favour in the next year.

Whether movement in 15% of the Scottish property market has a significant effect on prices and rents is something we will have to wait and see.

Rents

If you are letting property in either Glasgow or Edinburgh you should find rents holding up well and yields bearing up under the pressures of the cost of living crisis.

Elsewhere in Scotland, increased interest rates may put some pressure on yields and therefore on rents. As with all such changes it will take some time before we can be certain of any sector-wide changes.

Within the industry there appears to be a certainty that rents will rise in 2023 purely in response to the chasm between demand and supply. This may to some extent be in the gift of the Scottish Government and whether the rent freeze ends in March.

Legislation

This is one area where landlords in Scotland face greater challenges than their counterparts elsewhere in the UK.

There is no reason why the private rented sector shouldn’t be regulated, there are many other industry sectors which are subject to far greater legislative oversight.

The question is whether or not the legislation is excessive having regard to the problems it ostensibly seeks to address. There is undoubtedly a feeling amongst some landlords that this is not the case.

Be that as it may, it is unlikely that the Scottish Government will lose its interest in housing in Scotland. Some legislation is aimed at the whole housing market, some will be solely aimed at the PRS.

Current and future landlords will have to decide whether they are willing to continue to operate in this evolving environment, however balance against this the certainty that the PRS will continue to see unprecedented demand.

Advice from the property pros

2023 is going to be a challenging year, I don’t think anyone would disagree. However despite the economic difficulties rental properties will remain in high demand and there is little chance that supply will catch up with demand.

Rents and yields will remain strong in some areas, making investment a less difficult decision. In less active parts of the market, landlords and investors will be well advised to do their homework and have a clear strategy.

Legislation is in the ‘deaths and taxes’ category of inevitability. Representations can be made, but without any guarantee that they will change the end result. If that bothers you deeply, maybe the PRS isn’t for you.

If, on the other hand, you can adopt a more flexible attitude to any possible changes there is no reason that you cannot pursue a viable investment strategy despite changes in regulation.

Knowing what you want out of your investment will be critical. Whether income or long term investment, you need to enter the market with your eyes open and a good understanding of how it works.

If you get your ducks in a row and understand the challenges and opportunities inherent to the private rented sector, 2023 could well be a great year to invest in buy-to-let.

In summary…

2023 could well be a decisive year for you if you’ve been considering whether to invest in buy-to-let. The market is more challenging than it has been, but that doesn’t mean that there is no longer a healthy market.

We’ve been involved in buying and selling tenanted properties and investment properties for many years, and despite everything we continue to be very busy.

If you are thinking of making the leap in 2023, call us and have a chat. We’ll do our best to advise you about the pros and cons of investing and which sector and type of investment would best suit your needs.

There are plenty of opportunities available, you just need the knowledge and guidance to help you find the ones which are right for you.

So, make 2023 a very Happy New Year!

Written by Chris Wood, MD & Co-founder of Portolio, and Ross MacDonald, Director of Sales & Co-founder of Portolio