2023 will have been a difficult year for many British landlords. The private rental market has been battered by escalating mortgage rates, increased costs, and relentless government regulation. The prospects of sluggish economic growth, a divisive political environment, and, most concerning of all, a potential collapse in housing prices now confront landlords who have so far managed to stay in business.

The rays of optimism that shine through the dark clouds that currently surround the private renting market, showing that all is not lost according to property experts including letting agents in Sittingbourne. Mortgage rates are starting to peak, and rising rental yields, which are partly caused by the debilitating shortage of suitable rental property, will start to support rising mortgage costs. In addition, falling home prices may present savvy investors with a once-in-a-lifetime chance to buy attractively priced houses ahead of a future price surge. There are still benefits to being a landlord even though there may be simpler and easier ways to invest your time and money.

Mortgage interest rates are starting to rise

For many investors, investing in ordinary buy-to-let homes yields returns that are inferior to those of stock market investments. A house purchased in 2017 for £249,000 would have increased to almost £310,000 by the end of 2022, according to the Investors Chronicle, bringing in an additional £96,000 in predicted rent over that time. After maintenance expenses are subtracted, which amount to an alarmingly high 31 percent of rental income, this is around a 52 percent return over a period of six years. Comparatively, over the same time period, the S&P500 returned 90.1%.

But the real benefit of buy-to-let investing is the chance for regular investors to gain from leverage. the capability of borrowing money against your assets to accelerate your growth. In the above example, the investor’s actual return would have been a stunning 134 percent, well exceeding the performance of the S&P 500, if they had financed the acquisition with an 80 percent LTV mortgage locked at 5 percent during the time period. But many over-leveraged landlords are starting to feel the squeeze as a result of the Bank of England base rate’s quadrupling to 4% in less than a year.

However, there is still some good news for landlords. Rates will start to plateau as the raging inflation that has tightened monetary policy and squeezed wallets starts to stabilise. Mortgage rates are starting to flatten, even if there is a chance that the base rate will rise another 1% to 2%. We may have already experienced the worst of things. Rates are predicted to drop back down over the following two to three years, normalising around 3 to 4%, giving landlords the chance to choose tracker mortgages and take advantage of the ride down with declining monthly interest payments. You can choose to stay safe and be guaranteed about reaping profits by availing the landlord property management services offered by expert estate agents.

A Sector with Less Competition

The private rental market is expected to lose 70,000 landlords in 2022 alone, and it’s likely that this trend will continue until 2023. According to Propertymark’s research, there were half as many rental properties available through leasing brokers in March of 2022 compared to March of 2019. 84% of landlords who removed their houses from letting agents are thought to have done so with the purpose of selling. Similar data from Rightmove shows that there were 26% fewer rental homes available in the third quarter of 2022 than there were on average before the epidemic. The deficit in London was significantly worse, at – 30%.

The pressure of a finite supply is starting to make the private renting market squeak. There is an alarming dearth of suitable rental homes on the market that are open to tenants. While this is unsettling news for tenants, policymakers, and landlord service providers alike, it does provide landlords cause for optimism. For months, prospective tenants have been waiting for the right house to hit the market. Tenants are starting to drive up the price in an effort to get the ideal property when a high-quality home in a desirable location does list. Those who stay will discover that the private renting market has become less competitive as landlords continue to quit the market.

Rents are going up.

Rents are rising at their quickest rate in seven years, climbing 4% in 2022, which is another cause for optimism. Tenants have been forced to bid up properties as a result of the sharp drop in rental properties available. However, because of the increasing cost, many first-time purchasers have put off making their own home purchases due to rising mortgage rates. This has increased the number of people looking to rent, which is supporting the growth of the rental market.

Many predict that this trend will persist through 2023; according to specialist broker Finanze, rents in the UK might increase by as much as 12.91% this year. Rents are still expected to rise by 6.5 percent in 2023, according to more conservative projections from the real estate firm Savills, with a compound annual growth rate of 18.3 percent until 2027.

Rising rents will sustain returns in the short run by acting as a buffer against rising mortgage payments and declining home values. Rental yields may be able to rebalance to a more desirable and sustainable level in the medium term as a result of both decreasing home prices and rising rents; they may even reach the point where landlords are enticed to enter the market again.