"Our analysis suggests improvements that increase property size, such as extensions or loft conversions, can boost both value and rental income. While kitchen and bathroom renovations are harder to quantify, adding a second bathroom can add 8% to a BTL property’s value, about twice the impact for an owner-occupied property."
- Andrew Harvey - Nationwide
Kitchen and bathroom renovations remain the most popular improvements for buy-to-let (BTL) landlords, while green upgrades are increasingly being considered, according to new analysis from Nationwide.
Yet, despite this, more than half of landlords regret renovating their rental properties, highlighting the challenges of balancing costs and benefits.
According to recent research, adding extra space can significantly boost both property value and rental income:
Adding an extra bathroom can increase a BTL property’s value by 8%.
Creating an additional bedroom can lift typical rent by 12%, roughly £125 per month.
A second bathroom can attract a 6% rental premium, around £60 per month.
Renovation trends
“Nearly nine in ten (88%) landlords have undertaken renovations on at least one of their rental properties over the past five years, according to our latest research,” said Andrew Harvey, senior economist at Nationwide. “Kitchen and bathroom improvements were the most popular, with one in five (c. 20%) renovated properties receiving these upgrades over the past five years. As we explored in our recent report, these were also the most popular projects amongst homeowners who had made improvements.
“18% of properties that had work done benefited from green improvements. Of these, just over a third (37%) had solar panels added, 33% improved pipe and boiler insulation, and 32% had electric car charging installed. Some of these improvements are likely to have been targeted at achieving minimum energy efficiency standards (MEES), which require most rental properties to have a minimum energy efficiency rating of E in order to be let out."
"Indeed, more broadly, 22% of landlords said they chose to renovate to ensure compliance with required standards and regulations, which include but are not limited to energy efficiency.
“As we explored in our recent special report on housing stock, solar panels are becoming an increasingly popular feature, with nearly 1.5 million dwellings in England now having photovoltaic panels, nearly 6% of all dwellings (up from less than 3% in 2013). Electric vehicle charging is also becoming more widespread, with 1.8 million dwellings having access to a charge point, around 7% of the total stock.
“In terms of larger projects, 17% of privately rented properties had a multi-storey extension built, while 15% had a basement conversion. Interestingly, two-thirds (68%) of landlords said some of the work undertaken was related to converting a property to a House of Multiple Occupation (HMO)."
“Across all landlords making renovations in the last five years, the average spend was around £88,000 in total, although there was significant variation reflecting the mix of work undertaken and portfolio size. Accounting for the number of properties renovated, this works out around £43,000 per property."
“Landlords cited a variety of reasons for renovating. The most popular were to attract new tenants and reduce vacancy periods (27%) and to boost the property’s value (25%). Meanwhile, 24% said renovations were necessary due to general wear and tear, and 23% aimed to ensure they maintained a good reputation as a landlord by showing care for the property and tenants."
“23% of landlords chose to renovate to increase rental income, and over 80% raised the rent after completing renovations, with an average increase of 17%. Nearly a third (32%) were able to increase rent by more than 20%."
“However, just over half of landlords (51%) said they regretted renovating their rental properties. The most common complaints were loss of income while tenants moved out (35%) and not achieving the desired rental income (32%). Nearly half (47%) had carried out renovations while the property was vacant, while 30% felt the costs were too high.”
Value of additional space
“Our analysis suggests improvements that increase property size, such as extensions or loft conversions, can boost both value and rental income,” Harvey said. “While kitchen and bathroom renovations are harder to quantify, adding a second bathroom can add 8% to a BTL property’s value, about twice the impact for an owner-occupied property."
"Adding an extra double bedroom can lift the value of a two-bedroom house by 13%. Landlords who add a loft conversion or extension incorporating a double bedroom and bathroom could see as much as 24% added to the value of a three-bedroom, one-bathroom house."
“Adding space also affects rental income. Creating an additional double bedroom can increase typical rent by 12%, or around £125 per month, while a second bathroom can bring a 6% rental premium, roughly £60 per month. Larger projects such as loft conversions could see a rental uplift of 26%, around £285 per month on a typical rental property.”
Energy efficiency
Improving energy efficiency can also add value. Properties rated A or B attract a premium of 10.9% compared with a typical D-rated property. For landlords, upgrades that improve compliance with MEES standards are increasingly important.
“Ultimately, the decision to invest in a property is individual, taking into account both costs and potential benefits,” comments Mary-Lou Press, president of NAEA Propertymark.
Challenges for landlords
“Nationwide’s latest report reveals the difficult balance landlords face between maintaining high-quality homes and managing the rising costs and complexity of renovation,” Press adds. “Improvements that increase space or enhance energy performance continue to add the greatest value. These findings reassure tenants that landlords are investing both for personal reasons and to improve the quality of homes, including compliance with minimum energy efficiency standards.
“However, over half of landlords regret undertaking renovation work, highlighting financial pressures. Excessive taxes, regulatory uncertainty and loss of income during void periods all make it harder to recover costs, especially with higher interest rates and tenant affordability constraints.
“A clear, long-term approach to energy efficiency standards and a review of taxes and regulations affecting investors would give landlords the confidence to continue improving property quality. This would boost supply and ensure safe, modern, energy-efficient homes remain accessible and affordable for tenants.”
