If 2023 was the year of the bear — as buy-to-let (BTL) landlords, brokerages and lenders all suffered the aftershocks from the Truss/Kwarteng Mini-Budget of September 2022 — then 2024 (or the first quarter at least) looks like the year of the bull.
Indeed, in 2023 the Bank of England base rate reached a 17-year high; and, even taking into account the general growth in rental yields, with finance costs more than doubling in some instances, the required leverage on single-occupancy BTL, especially those securities held in personal names, was nigh impossible to obtain.
A working PRS with an ability to scale capacity is vital
This left landlords with a commercial decision only scarcely more benevolent than ‘Hobson’s choice’, facing the difficult decision of either: remaining on (an extremely high) lender’s SVR/variable rate; taking a relatively uncompetitive product transfer (if they were lucky enough for their lender to offer such); incorporation (should they be able to bear the immediate costs, especially if Section 162 tax relief was not obtainable); or selling their stock (potentially triggering a substantial capital gains tax liability, and then being left holding cash in an inflationary market).
Net-positive contribution
I have consistently taken up the cudgels for landlords and their net-positive contribution to not only a healthy private rental sector (PRS) but indeed greater society.
It is a fact that the PRS houses much of society’s most vulnerable. With councils’ social-housing stock at an all-time low, and local councils UK wide falling into increasing debt, caused in part by the huge cost attached to a council’s requirement for temporary housing (often absurdly expensive hotels), a working PRS with an ability to scale capacity is imperative.
The resurgence of landlords, and current demand for BTL, is a huge net positive for the UK, the wider economy and society as a whole
As a result of the aforementioned challenges, last year ended with a circa-10% drop of stock within the PRS, creating pressure on the rental market, a ludicrous demand-to-supply ratio and, as an obvious consequence, significantly increased rents impacting many of those most in need.
Not only is the PRS now home to the expanding demographic of those financially restricted from purchasing a home, but it has the extra burden of the growing movement of ‘tenant by choice’, which not only needs housing but, understandably, may jump the queue for a landlord seeking a financially robust tenant.
However, from the relative bear market of 2023, BTL effectively became an industry bull market again from the start of 2024. Stimulated by many BTL lenders cutting rates by up to 1 percentage point, the refinance market was rejuvenated. Brokerages and landlords could obtain the necessary leverage going back to market to seek competitive lending, rather than be forced to accept whatever suite of product transfers was offered.
Last year ended with a circa-10% drop of stock within the PRS, creating pressure on the rental market
Crucially, if the remortgage market was reinvigorated in the embryonic stages of 2024, the BTL purchase market resembled The Revenant — a metaphorical phoenix from the ashes.
Suddenly, not only could landlords achieve the requisite leverage to purchase BTLs but, with property prices correcting by circa 10% throughout much of the UK last year, and with rents having increased by up to 20% over the past two years, they could purchase stock in a tax-efficient structure, achieving greater yields in their preferred locality of investment than perhaps they had achieved in the previous four or five years.
The refinance market was rejuvenated
Indeed, even with recent swap-rate volatility pushing lenders to increase rates nominally over recent weeks, full mortgage application submissions have risen to the record levels of 2022, with a relatively balanced, healthy split between purchase and remortgage.
Of course, 2024 will see great change, including a probable change in government. However, whichever political party serves the country, it is abundantly clear that the resurgence of landlords, and current demand for BTL, is a huge net positive for the UK, the wider economy and society as a whole.
Matthew Rowne is director of The Buy to Let Broker
This article featured in the April 2024 edition of MS.
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