Half of buy-to-let investors anticipate an interest rate rise in 2015 yet 2 in 5 plan to expand their portfolioConfidence in the health of the buy-to-let (BTL) market will encourage significant investment in the sector by UK property investors in 2015, according to new research from Platinum Property Partners, the specialist buy-to-let business.

This comes despite the fact that more than half (52%) of BTL investors believe interest rates will rise next year. The research – which surveyed over 500 UK BTL investors – revealed that while the majority expect an increase, overall 42% believe interest rates will rise by less than 2%. Only one in ten (10%) expect to see interest rates rise by 2% or more. However, 29% cited a rise in interest rates as their biggest concern for 2015.

While an interest rate rise of any size would make BTL borrowing more expensive, this hasn’t slowed down landlords’ ambitions. Two in five (43%) existing landlords intend to grow their portfolio of rental properties next year. Most intend to expand their portfolio by one property (23%), although more than one in ten (14%) will purchase two more rental properties in the next twelve months.

Landlords owning Houses in Multiple Occupation (HMOs) for young professionals and key workers have some of the biggest ambitions for 2015. Over half (52%) of them plan to add to their BTL portfolio during 2015, with almost a third (29%) planning to add two properties, while 14% will add three.

Table 1: By how much do you plan on extending your portfolio in the UK in the next 12 months (by property type)?

By how much do you plan on extending your portfolio in the UK in the next 12 months?Note: All percentages are rounded to the nearest whole number.

Landlords still feel confident about capital growth despite recent reports that the housing market is slowing. While the Council of Mortgage Lenders (CML) point to a dip in mortgage lending as evidence that there has been a ‘plateau’ in housing market activity*, landlords are confident that house price growth will continue during the course of the next five years. Just under half (49%) expect UK property values to climb by up to 10% over this period, while a further 28% of investors predict an increase of 10% or more.

HMO landlords have an even more positive outlook for capital growth. Over two in five (43%) believe property prices will increase by 10% or more: 15% more than the overall average. None of the HMO landlords surveyed expect house prices to decrease in the next five years.

Chart 2: How do you predict property prices in the UK will change within the next five years? (All landlords)

How do you predict property prices in the UK will change within the next five years?

Concerns about 2015

However, UK BTL investors have some concerns about what 2015 may bring. When asked for their number one concern, an increase in interest rates topped the poll (29%), closely followed by future changes in laws and legislations for landlords (26%). A further 9% are most concerned about the impact of a change of Government ahead of the general election. Only one in five 20% of investors have absolutely no current concerns.

Chart 3: What concerns you most about the future of the BTL market?

What concens you most about the future of the BTL market?

Steve Bolton, Founder and Chairman of Platinum Property Partners (PPP) comments: “A rise in interest rates is one of landlords’ main concerns for 2015, yet the majority don’t anticipate that these rises will be dramatic or unaffordable. As a result, our research reveals that the sector will continue to grow next year, with two in five planning to add to their BTL portfolio despite a likely interest rate rise.

“Investors in HMOs show the greatest intention to increase their portfolios, which reflects the fact that HMOs and renting to working tenants such as young professionals delivers extremely attractive returns, and offers higher rental income compared to other BTL options if done properly. This has cultivated robust confidence among those already reaping the fruits of this type of investment, and has sown the seeds for ambitious expansion in the sector next year.

“This is great news for the long-term health and prosperity of the sector, as thousands of ambitious young professionals at the beating heart of economy depend on the flexibility of rental accommodation to follow the best job opportunities. However, they also require more choice of high-quality yet affordable homes to help them save for a deposit should they wish to buy in the future.

“Naturally, as an investor you can never guarantee the level of your return, and even seasoned landlords need to do their homework and seek expert advice before making another investment to maximise their profit potential.”

*CML Gross Mortgage Lending release (September 2014)