How Will BTR Impact BTL?

The Buy-to-Let (BTL) market is in the midst of rapid transformation. For years, BTL has been a lucrative investment opportunity, but times have changed. Build-to-Rent (BTR) sites have emerged as one of the government’s preferred solutions to the UK’s housing crisis. Global corporate institutions are keen to invest and subsequently, the standard of rented accommodation is being raised - BTL must adapt to survive. How can traditional BTL compete? I would like to discuss the meteoric rise of BTR and how landlords and agents can adapt, in order to keep up with the times.

The rise of BTR and developing standards

To understand the current landscape, we need to explore what has given rise to BTR in the first place, and why it’s so popular…

A cultural revolution

In the aftermath of the 2008 financial crash, home ownership became a rarity. With fewer buyers, mortgage owners struggled to sell for the price they wanted. As a result, many chose to put their properties up for rent. Back then, the rental market was strong, but nowhere near as prevalent as it is today. Gross rental intake has doubled in 10 years. 2017 saw a record £51.6bn in paid rent, and over 40% of young people now believe they will never buy a property. Renters started to enjoy the flexibility of residential contracts. They began to view it as a way to live more freely, giving them the ability to look for more jobs or hop from city to city every couple of years. Profits rolled in for private landlords who – with their agencies – catered for these new lifestyles. And until now, they’ve been unchallenged. Yet BTR has totally changed the game.

Affordable luxury

With BTR developments springing up in towns and cities across the UK, BTR caters for tenants in search of a space they can call home for many years. They aim to justify and cultivate long-term tenancies in key locations – exactly where more and more city residents want to be. These sites focus on making quality spaces that are tailored to one demographic or another. Often, they’re spurred by overseas investment worth tens of millions of pounds, these institutions don’t mind investing significant sums for higher returns. Consequently, on-site services, social spaces, utilities, and especially furnishings and design, have improved dramatically. With such quality control, BTR has raced ahead of the competition – and tenants have no reason to settle for less.

What’s next for BTL?

If you’re a letting agent, you’ve seen the struggles that BTR represents for other landlords. They can no longer afford to buy low quality furniture or cut corners on interior design. As renters become more discerning, they’re less likely to settle for a bad rental deal. That means a large share of landlords are selling up. They may feel as if they can’t compete, or cope with new government legislation that curbs their earnings. In September 2018, 4,000 rental homes were reported as being sold off each month in the UK.

It comes amidst other market changes. The tenant fee ban, for instance, is predicted to wipe as much as 22% off an agency’s annual income. When we consider new mortgage tax rules and penalties for energy-intensive utilities, there’s even more motivation to save money and avoid void periods.

However, there is a way for agents and landlords to benefit from this situation. If you think ahead, you can re-position yourself in the fresh expectations of BTR. You’ll also earn more as a result.

Bring design to the forefront of your portfolios

The response to BTR? Make the best of existing rental properties. With closer attention paid to how they look and appeal to long-term tenancies, you won’t lose any major rental revenue. My work at LOFT – a tailored furnishing service with links across the country – proves this can work. As waves of new stock (as well as BTR) demand that people pay more for their tenancy, you must justify a rent increase. If you don’t, then people won’t enquire after your property. Simply increasing the price won’t work unless you have a valid reason the tenant can appreciate. At such an important stage in the market, agents can’t afford to fall behind.

Instead, consider the benefits of a well-designed home. One that welcomes people into a bright, contemporary setting. A place that has just as much character – if not more – than a BTR apartment. With LOFT’s design-led furnishing solutions, your tenants have a set of stylish, affordable pieces that maximise the space. At the same time, they’ll enjoy much better quality than a standard budget investment. Showrooms and staging opportunities help these qualities shine, and you can expect fewer void periods as more tenants are drawn to a well-designed property.

Moreover, we’ll give agents a referral fee based on what we earn. This additional income is useful when we consider the tenant fee ban and other restrictions on the lettings market. Referral earnings can certainly help cover the extra payments on your part.

My role at LOFT is to make this plan come together. I regularly advise and budget service packages for our clients. We can treat any rental property, whatever the scope or target rental group, until it has the utmost visual appeal. BTL is too big to ignore. By making a few smart design choices now, you can prepare for the future. If you want to know what they are, get in touch.

To learn more about LOFT’s services before the tenant fee ban arrives, speak to a member of our team.