Despite facing headwinds in the rental market, buy-to-let (BTL) property portfolios in England and Wales have experienced a remarkable surge in income over the past year, according to a recent research report by Benham and Reeves. The findings, unveiled in the report, highlight the resilience of landlords in the face of challenging conditions.
The study reveals that BTL portfolio incomes have soared by an impressive 8.7% in England and Wales during the past year. This substantial growth comes in the wake of a previous report that indicated a 5.6% reduction in portfolio sizes, dropping from 9.1 properties to 8.6 over a 12-month period.
What’s particularly noteworthy is the 15.1% increase in the average rental value, which climbed from £7,396 in Q1 2022 to £8,510 in Q1 2023. Consequently, the average annual portfolio income surged from £67,304 to £73,186 over the same period, marking a substantial increase of £5,882.
In London, where landlords faced the least decline in portfolio size, from 7.6 properties to 7.5, the average rental income per property saw a staggering rise of 34.7% to £13,095. This surge translated to an annual rental income increase of 32.9%, reaching £98,213 for the average BTL portfolio within the capital.
The East of England also witnessed a remarkable portfolio income increase of 32.7%, driven by an expansion in portfolio size, which grew from 6.4 properties to 9.2. The South East (27.8%), Yorkshire & Humber (16.4%), the South West (15.5%), North West (5.5%), and North East (0.6%) regions all experienced boosts in portfolio income as well.
Surprisingly, despite observing the largest increase (41.5%) in average rental income per property among all regions, Wales suffered the most significant overall decrease (-19.2%). This drop was attributed to a reduction in the average portfolio size, plummeting from 12.6 properties to 7.2.
The East Midlands saw portfolio incomes decline by 11.1%, primarily due to a shrinking average portfolio size, which went from 11.8 properties in 2022 to 7.8 in 2023. Meanwhile, the West Midlands saw an increase in portfolio size, from 8.5 to 9.2 properties, but a -8.7% drop in income per property resulted in a modest overall portfolio income decrease of 1.2%.
Marc von Grundherr, Director at Benham and Reeves, shared his insights on the findings, stating, “Some landlords have seen their potential profits hit hard by crass government policy making and increasing mortgage rates, leading many to reduce the size of their portfolios, further diminishing annual income from buy-to-let portfolios.”
He added, “But we would suggest landlords think twice before offloading because, as we’re seeing across much of the country, rent values are increasing at quite a rate and have hit all-time highs across the capital, in particular.”
Highlighting the potential for future growth, von Grundherr noted, “This has been more than enough to offset other increased costs, such as a spike in mortgage rates. With mortgage rates very unlikely to sink back to the incredible lows the nation has enjoyed in recent years, rental demand is only going to grow stronger, meaning that rental values should remain consistently strong.”
The report by Benham and Reeves provides a glimmer of hope for landlords navigating an evolving rental landscape, suggesting that despite challenges, the buy-to-let market continues to offer lucrative opportunities for those willing to weather the storm.