New research out by bridging loan financier Finbri shows that over 50% of UK property investors are planning to increase their holdings in 2023. We look at their findings and delve into why experienced buy-to-let investors remain positive about the UK property marketplace.
Fibri surveyed over 1,000 property investors and found that 50.45% indicated they are looking to further expand their portfolio in 2023.
Their other findings showed that there was a split in sentiment between larger and smaller property investors. 23.07% of investors with less than 5 properties have said that increasing interest rates would cause them to sell their properties. Whilst in contrast, 67.92% of investors with over 5 investment properties, do plan to invest further in 2023.
Stephen Clark, from Finbri, states: “This report shows that there’s likely to be a marked difference between the investment strategies of smaller Vs. larger property investors in 2023. Fueled by recent tax, legislative, and economic challenges the smaller private landlords are facing significant problems – not least of all the successive interest rate hikes experienced this year. In essence, the smaller investors look more likely to sell and the larger ones are looking to capitalise on that opportunity.”
Last month we reported our forecast for 2023. As part of our analysis, we looked at forecasts from, house builders, property portals and mortgage lenders. Most participants believed that there would be a correction in the market with an average retraction of around 5%. Though there was a wide variance of opinion on how the market would perform.
The underline issues were:
- Inflation at 40 year highs, causing a cost of living crisis.
- Rising interest rates, making borrowing more expensive.
- Likely recession, this would place a further strain on the economy.
- Likely rising unemployment, resulting in home foreclosures.
Why do experienced investors remain positive?
With over half of UK property investors are looking to expand their portfolios in 2023, many investors must hold a positive sentiment. We take a look at the potential reasons.
There is a huge housing shortage in the UK. The government has failed to deliver on the 300,000 new homes it plans to build each year. This shortfall was magnified during Covid.
Importantly, many larger house builders are reducing building plans for 2023 until such time that the market become more optimistic. The remove of the help-to-buy scheme was also listed as a major area of concern for house builders. This will result in an even greater housing shortage.
For investors with a long-term time horizon, the supply-demand imbalance will continue to move in their favour.
Home ownership aspirations
The majority of renters still have aspirations for home ownership. This demand will continuously drive prices up in the longer-term as more people are chasing homes than are currently available.
Whilst property prices may retrace slightly in the shorter term. Rents are still rising. For investors this means income is still attractive. This is an important reason why buy-to-let investors will continue to remain in the market.
In recent years it has very much been a seller’s market with a stampede of buyers bidding for the same property. This has resulted in several properties being sold at above their listing price. It is anticipated that this year the market will change. There are likely to be some forced sales that experienced investors could buy below the market rate.
What should investors be wary of?
There are still various issues that investors should follow.
Currently, mortgage rates are at their highest levels since the financial crisis in 2008.
25% of property investors have said they would struggle to re-mortgage or refinance if rates continue to rise. Demand could reduce in this scenario. This is likely to be compounded as lenders are expected to tighten mortgage lending criteria.
Inflation is high and the economy is faltering. Unfortunately with boom and bust economics, no one can understand how long and deep any down turn is going to be. Once sentiment turns for the worse, many people don’t spend and this reduces prosperity and increase unemployment.
On the flipside, it is possible that the property investment market could become more competitive as more people look to buy. With increased competition, investment property prices could increase.
Where should I invest?
There are a number of emerging hotspots. However, due to the taxation of Stamp duty and capital gains tax, many buy-to-let property investors are in for the longer term. With this in mind, more savvy investors are concentrating in the northern cities where there remains strong demand, coupled with high yields and affordable property prices.
Manchester, Birmingham, Liverpool and Leeds remain good cities for investors wishing to maximise their investment returns.
UK property investors planning to expand portfolio
We believe that if you are planning to build a long-term portfolio, 2023 could be a good year to increase your holdings. This is due to several good offers becoming available later in the year as the economy falters.
For buy-to-let investors who are refinancing to facilitate a new purchase, we are recommending HMO investments as well as off-plan options. HMOs offer a high yield, whilst, with off-plan, you could secure a big discount to the market rate. This is especially the case with many developers offering exceptional deals to help fund existing projects.
For investors that are seeking a hands-off investment way to supplement their pension then purpose built student accommodation remains the asset class of choice. Whilst investors who buy a property through property funds, stocks or REITs, there are good deals to be had due to lower sentiment.