Keen to invest in property UK? Buyers adapt their approach

2022 was a year of challenges for the property market, from the war in Ukraine, government upheavals, and September’s mini-budget, to rising inflation and interest rates making it harder to get a mortgage.

Understandably, it’s all made people wary of the financial risk of investing in property and has led to a shift in buying strategies.

Distinct changes in buying habits were spotted by a firm of East Midlands conveyancing solicitors, following a comparison of their internal property enquiries for 2022 and 2021.

Bird and Co solicitors’ findings revealed that their clients were adjusting their property investing strategies: while they were seeing fewer first-time buyers, there was a notable doubling of enquiries about commercial premises.

Let’s look at what this may mean for property investing in 2023.

UK house prices are cooling in many areas.

Reasons for real estate investment

With fewer first-time buyers, landlords continued to see opportunities in investment property. Letting increased by 1% between 2021-22, remaining at around 1 in 6 cases for Bird and Co. Of their conveyancing clients in 2022, 17% were buying a buy-to-let property, compared to 14% in 2021. 1% were buying a holiday letting and 1% a House in Multiple Occupation (HMO).

Fewer people bought houses to use as a holiday let property investment, HMO, or other letting in 2022 than in 2021. The reduced interest in a UK holiday let may well be due to the end of travel restrictions.

The number of people investing in property to operate as a holiday let fell in 2022.

Strong rental market offers investment opportunities

According to bridging finance broker Finbri, which conducted a survey into UK property investors’ plans for 2023, smaller private landlords may be struggling with the costs involved. These can include interest rate rises on top of tax and legal changes in recent years and maintenance costs. They are more likely to sell their properties, while larger investors may well take advantage of the opportunity to buy property in the current market, increase their property portfolios and aim for capital growth.

Finbri found that over half of UK property investors are thinking of investing in 2023. A total of 23.07% of investors with less than five properties said that interest rate rises would cause them to sell. However, 67.9% of investors with over five properties plan to buy, due to an expectation of more properties coming to the market at reduced prices, and buoyant rents offering improved rental yields from their investment. Increasing mortgage rates will, however, make many wary as it will be harder to remortgage and refinance.

The annual report from the estate agents’ membership body Propertymark stated that rental demand is increasing – up 57% since 2018, with no increase in the size of the private rental sector since then. It also found that buyers are adopting a wait-and-see approach, with fewer viewings per property, and while there are more houses on the market, 71% of agents are concerned by sellers’ high price expectations.

First-time buyers are finding it harder to get on the property ladder.

First and second-time buyer statistics

Bird & Co. solicitors’ research revealed:

First-time buyers

  • The number of first-time buyers fell from 71% in 2021 to 68% in 2022. This small decline could suggest that they are struggling to afford the mortgage deposits required, while landlords or second-time buyers continue to take properties off the market.
  • The gap between first- and second-time buyers grew; 68% of clients were first-time buyers – less than in 2021, however, just under 1 in 3 clients were buying their second property.
  • Fewer people bought newly built properties than in 2021 – a 1% decrease – which could explain the drop in first-time buyers as some government schemes only apply to new-builds.

Second-time buyers

  • The number of people investing in a second property increased from 29% in 2021 to 32% in 2022.
  • 76% of those buying a property intended to use it as their main residence compared to 42% in 2021.
  • Over 32% of enquiries in 2022 came from buyers already owning another property.
  • Over 23% of buyers in 2022 were not buying the property as their main residence – 17% wanted it for letting purposes; 1% for an HMO and 1% for a holiday let.
  • Over 2022, 1 in 3 of Bird and Co’s clients were second-time buyers, either investing for rental income or a holiday home – which means that a third of properties were taken off the market to operate as rentals or second homes.

The outlook for property investing

According to Daniel Chard, managing partner of Bird & Co, first-time buyers are struggling due to high living costs, interest rates, and lenders’ reluctance to lend to people who are paying as much in rent as they would need to in mortgage payments. He suggests that first-time buyers need government help to keep the market vibrant; measures could include increasing affordable housing, and encouraging more house building as well as new tailored housing schemes. He noted:

The increase in investment for business purposes could serve some purpose to communities, either by creating commercial spaces for work or by providing more available properties to let. That said, more needs to be done by the government to support first-timers in the coming years, or things may continue to stagnate.

We have also seen a decrease in enquiries for holiday lets, which could be down to the end of Covid restrictions this year, which saw many enjoying holidays abroad. Meanwhile, buy-to-let and business opportunities have risen, suggesting 2022 was a good year for landlords.

Experienced investors are still buying houses in the residential sector.

Property investment outlook

Financial markets and mortgage rates have settled in 2023, calming nerves slightly, and investors will still be spotting opportunities.

Zoopla property expert Richard Donnell commented:

While many forecasters have made bearish predictions for 2023 – anticipating house price falls of 8%-12% and a significant fallback in sales numbers – we’re more positive about the outlook. We’re anticipating 1m housing sales in 2023, supported by more working from home, the ongoing spike in retirement, and a greater consideration of home running costs.

New mortgage rates are manageable; banks are well-capitalised and ready to lend. Overall, I think 2023 may well disprove the gloomy forecasts made when the outlook for mortgage rates looked much worse.

More properties are coming onto the market, according to Rightmove’s property expert Tim Bannister, who forecasts residential property prices falling by an average of 2%, dependent on location. He added that he anticipates:

A more even balance between supply and demand this year but no major price falls. Recent stability in the financial market led to an increase in mortgage deals available, and while lenders have tightened their affordability criteria, some lenders have cut rates in 2023. More choice may mean homes are on market for longer.  

Final thoughts on property investments

Second-time buyers are actively purchasing properties that they intend to operate as rental properties or create business opportunities from. While first-time buyers are hard-pressed to compete, the only slight encouragement for them is that the mortgage market is improving and prices in some areas are expected to drop – but by how much it’s impossible to foresee.

Investors and residential landlords will also be seeking opportunities from price reductions, buoyed by the high demand from renters. Rental property is in short supply, due in part to first-time buyers opting to rent and see what mortgage rates and house prices do, but this pushes up rental demand. Buy-to-let properties are still attractive, especially for experienced investors dealing with student properties and those suiting young professionals. Buying in the right areas is vital to achieving the bests returns in this marketplace.

Opportunities exist for investors to spot well-priced, lettable property, made more attractive by rising rents, offering higher rental yield. Due to the shortage of good quality rental stock, investors may be keen to add long term value to a property by improving its energy efficiency, making it attractive to tenants as well as looking ahead to changes to Energy Performance Certificate regulations to come.

Further insights into property ownership

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