What Can We Buy to Let Landlords Expect in the Year 2022?

With a slowdown in house price growth, increasingly expensive mortgages, and more stringent regulations, what is in store for landlords for the year to come?

2021 saw a boom in house prices, increased rental costs, and record-breaking low-interest rates, creating an ideal environment for landlords across the UK. With the average house price rising by £23,902 over the last year, many landlords opted to sell their properties, resulting in large capital gains for them.

With demand exceeding supply for rental properties, rental costs have increased to rates not seen for the last thirteen years. Even with the increased tax levies, buy-to-let investors have had a very lucrative year. There are, however, some potential hurdles to cross in the year to come.

Changes to regulations require landlords to make the necessary adjustments in order to make their properties eco-friendly, and there is also the proposition of the scrapping of no-fault evictions.

House prices to stabilise

Since the onset of the pandemic, house prices have risen by an average of almost £34,000, with the highest growth since 2006 in the last three months. This has resulted in many landlords benefiting from the increase and making the decision to either sell, remortgage or release equity.

Sales director at buy-to-let lender Shawbrook Bank, Emma Cox, said: ‘Despite the hurdles caused by the pandemic, the market has stood firm, and house prices have continued to soar in price.

‘This has created attractive opportunities for investors, whose confidence in the market has grown over the last 12 months. Their buying activity and trends show that the market is likely to remain strong over the short term.’

It is largely dependent on whether demand exceeds supply and whether house prices will continue to rise in 2022.

Nathan Emerson, chief executive of Propertymark, said: ‘Whilst buyer demand is expected to follow usual seasonal trends and take a dip over the festive period, agents are not seeing any signs that demand will slow in 2022.’

He suggested that any more tightening of supplies would result in a dampening of the market later in 2022.

‘Many sellers wait to see something they like and will market on account of having found it.

‘Without an enticing catalogue of potential new homes, pipelines risk becoming starved heading into spring 2022.’

According to Halifax, house prices are only expected to rise a further 1% over the next 12 months; however, both Hamptons and Savills are predicting a rise of 3.5% on average.

Rent amounts are expected to rise

With intense competition for rental properties, buy to let investors have cashed in by increasing rental charges. The number of available rental properties over the past year was down 43% below the five-year average, massively increasing the competition amongst renters to secure the property.

2021 saw a typical rent increase of 4.6% year-on-year from September 2020, with an 8.6% rise outside the Greater London area, a level not seen for 13 years.

Policy director for the National Residential Landlords Association, Chris Norris, said: ‘2021 showed some signs of recovery for the private rented sector, which tends to be counter-cyclical in nature, with economic uncertainty leading more people to rent rather than commit to large purchases.

‘Demand for rental accommodation increased across the UK, with some early indications that tenants are also returning to London after many left during lockdown.’

Estate agents are warning of many landlords leaving the market, causing a shortfall. This is also partly the result of the upcoming changes in regulations for buy-to-let investors.

‘Looking into the private rental sector, rental income is poised to remain strong as demand holds steady,’ commented Emerson.

The continued fight against COVID-19 will also have an impact on the future of the rental market.

‘The fate of rental markets in the next 12 months will rest upon the COVID-19 pandemic,’ Emerson adds.

‘Heading into winter, there is an anxiety about the Omicron variant with the UK Government moving to Plan B measures.

‘This could push a new wave of movers as people look to change their surroundings, or we may see more wanting to stay put until life feels more certain.’

Stamp duty surcharge

Although the 3% stamp duty surcharge was still required to be paid by buy-to-let investors, landlords still made significant savings during the stamp duty holiday. According to a report by Hamptons, landlords who invested during the initial stamp duty tax relief saved, on average, the equivalent of around three months rent. The 3% surcharge will, now that the tax relief has come to an end, put off some buyers from investing in rental properties.

Emeritus professor of housing economics at the London School of Economics, Christine Whitehead, said: ‘Our work on taxation of landlords across Europe suggests that as a result of the changes in taxation since 2015, individual landlords in Britain are being increasingly disadvantaged when compared to corporate landlords and other investment types.’

Increase in mortgage rates

Tax blows dealt to landlords over the last few years have been somewhat softened by the competitive and cheap mortgages available to them. With the high expectation that interest rates are set to rise in 2022, it is thought that some potential landlords will opt not to invest as future profit margins will be lower.

The Bank of England has already increased the base rate from 0.1% to 0.25%, with more rises expected in the near future.

Chief capital officer at the mortgage lender, Swen Nicolaus, Molo, says: ‘Next year could bring many things to make landlords nervous. The very strong inflation we have seen in 2021 will be a priority for the Bank of England to tackle.

‘With the base rate forecast to rise and mortgage rates potentially following it up, it will create challenges not only in higher mortgage payments for those not in fixed rates but also for affordability requirements for those looking to purchase or refinance.’

London renters returning to the capital

The pandemic led to many renters making the decision to move from London to the suburbs as priorities in the type of property in demand changed. This led to a panic amongst landlords in the capital, resulting in a drastic decrease in the cost of renting city property. Rentals had fallen by up to 12% by January 2021.

The market in London is steadily recovering, with many people returning.

Propertymark’s Emerson stated: ‘In the first half of 2021, there was a mass exodus from cities as tenants turned to rural and coastal areas in search of a more relaxed and spacious lifestyle.

‘In the second half of 2021, we have seen the return of students and some work forces back into cities; however, many returned to find landlords had sold and the availability of homes was far less than usual.’

Updated EPC regulations

With more and more regulations and loopholes for buyers to navigate, it is not surprising that they are somewhat put off investing. The EPC proposals will mean that stricter regulations will need to be complied with by a certain date.

Landlords currently need to achieve a minimum rating of E on their energy performance certificate and will be required to perform annual gas safety checks. This will increase to the required rating of C by 2025 in order to try and achieve the government’s net zero carbon emissions by 2050.

Rob Bence, co-founder and chief executive of landlord forum Property Hub, says, ‘I think the changes in EPC regulations will be a hot topic in 2022.

‘As it stands from 2025, all new lets, irrespective of the age or location of the property, will likely need to have a C rating.

‘This is due to be rolled out to existing tenancies in 2028, but there are murmurs that the government is planning to extend the deadline for new lets by one year to 2026.

‘Either way, transforming Britain’s rental stock to meet the government’s targets is a big challenge for landlords.’