There is no doubt that buy-to-let (BTL) market has faced significant headwinds over the past few years, but a panel of experts, hosted by United Trust Bank (UTB) voiced cautious optimism for the market.
From the scrapping of Energy Performance Certificate (EPC) regulations, ongoing tax changes including reduced mortgage interest relief and higher Stamp Duty, and the policy shifts likely to be driven by the Labour Government, landlords face a great deal of uncertainty.
This is not to mention the economic and geopolitical pressures that have seen mortgage rates rise at an exponential rate over the past 18 months, squeezing landlords’ margins and deterring investors from entering the market.
In light of this, a round-table of industry professionals gathered to discuss the complex picture of the current buy-to-let market, and how they might impact the sector going forward.
A resilient market
Despite the obvious challenges facing the rental market over the past few years, BTL business has seen a positive boost since late 2023.
By and large, a softening mortgage market and lowered rates have seemingly attracted landlords back to market, as they look to capitalise on favourable deals while they are available.
Matthew Rowne, director at The Buy to Let Broker, said that while 2023 was a difficult time for many within the sector, he has seen substantial market improvement since the last week of September 2023.
He said: “It has been quite turbulent, but we saw the market pick up quite substantially from the last week of September last year.
“And then from the first week in January obviously the rates dropped up to a percent which suddenly enabled remortgages were an awful lot had been product transfers [PTs].”
Andrew Montlake, managing director at Coreco, agreed, noting that landlords have been “cautiously optimistic.”
He added: “If you look at some of the surveys that have been done on landlords, some of them do think over the next 12 months they’re going to increase their portfolios further.
“As rates do start to fall, you’ll start to see the buy-to-let market improve again, and there’s probably quite a bit of pent-up demand in the buy-to-let market among landlords.”
From a lender perspective, Buster Tolfree, director of mortgages at United Trust Bank, noted that the market, given its recent struggles, has been “pretty resilient.”
He highlighted that last year’s rate shocks, while devastating for the mortgage industry as a whole, were particularly crippling for the BTL market.
However, many lenders were forced to innovate, injecting new life into the market.
“Lenders started raising the product fee to offset the rate,” Tolfree said.
“I’m not saying that some didn’t push that a little bit too far, I think some probably did, but actually that was quite an entrepreneurial solution to keep the wheels turning.”
Product transfers
Noting the lack of options for landlord customers during the turbulence of 2022 and 2023, discussion turned to the emerging popularity of PTs.
With controversy surrounding buy-to-let PTs, including high product fees, low broker fees and a lack of choice within the market, panellists were divided as to whether they were a viable option for borrowers struggling with affordability.
Rowne argued that, despite their historically high rates, PTs provided a valuable lifeline for landlords at a time in which there were few options within the market.
He said: “It provided an option for landlords, and I think that was the point.
“Landlords were stuck in a situation where, especially the in the specialist lending market, a lot of these lenders didn’t offer PT products […] rates weren’t competitive at all.”
He continued: “It wasn’t great to sell those products, but it did provide an option as long as landlords were aware of what it did, and actually the cost of funds was still the same.
“But it wasn’t a case of them trying to whack on higher fees to take advantage, it was to provide a solution.
“It’s about presenting it to a landlord and letting them make that choice for themselves.”
According to Simon Nicola, senior associate at Sirius Property Finance, while rates still remain high, the lack of choice when it comes to PTs is still an issue for the market.
He began: “I think rates are still an issue. There is some progression in the market now to move forward.
“I think people are coming around to the fact that rates aren’t going back to 2% or 3% and they’re having to pick and choose the kind of properties that they go for.”
He continued: “There are fewer lenders that do PTs but there are more lenders coming out with them.
“The rates aren’t particularly great, they’re not competitive.”
Montlake agreed, noting that PT business can adversely affect brokers as well as borrowers.
He highlighted the commonly held misconception within the industry that brokers have less work to do on a PT case, resulting in many of these product options having a lower broker fee.
He said: “There’s a massive misconception of the amount of work you have to do on the PT, and it’s been exacerbated where we are now in this market, especially when rates were changing.
“Especially for a buy-to-let customer with a portfolio, first you have to go through the portfolio to do all the work.
“You have to find out if a PT is actually the best option, or whether there are a couple of other options.
“Then potentially there could be rate changes where you have to go back and revisit it and you have to redo it again and potentially change your advice, etcetera – in some instances we’re re-brokering the same client four, five, six or even seven times.”
He continued: “As you go into each month, 50% of what your time is spent on is on stuff that you’ve already done, so you’re losing time on new business.
“It’s been like a perfect storm as broker, where not only are there less transactions and you’re doing the same work you’ve already done, you’re getting paid less for that, not just on proc but also on client fee – for a lot of brokers that just isn’t sustainable.
“For me, the work is the work. We’re just asking for the same on a PT as you would on a standard.”
Broker opportunities
With a view to improving conditions for brokers, panellists shed a light on current opportunities for advice within the market, discussing the important role of the broker, and how intermediaries can adapt to the sector’s changeable conditions.
Citing the broker and lender relationship as “symbiotic,” Tolfree highlighted the importance of lenders supporting the broker community, particularly through open communication.
He said: “Brokers can’t exist without the lending community, and we can’t exist without the broker community.
“It has got to be both ways.”
Montlake agreed, noting that brokers have begun to embrace a more holistic approach to advice over the past few years.
Detailing the ways in which the broker community has been “hurt” by the ongoing market turbulence, he advocated for a more wide-reaching approach to client management, stating: “It’s a relationship, not a transaction.”
Richard Howes, director at Paradigm Mortgage Services, took this approach one step further, having encouraged broker firms to diversify their advice process by offering cashflow planning solutions for their clients.
He said: “If you take a cashflow planning model and insert that into the conversations with a customer, the whole dynamic of the conversation changes completely because you’re talking about what if scenarios all the time.
“What if you have a rental void? What if your rent has to go up? What if you need to sell the property?
“Cashflow planning takes away this panic scenario that we’ve lived through for the last two or three years.”
Further advocating for improved communication lines between brokers and their landlord clients, he argued that there is a real opportunity within the broking market when it comes to open discussion – leading to more productive and profitable outcomes for all parties.
He continued: “We spend an awful lot of time talking about communication – how do you communicate with landlords and when do you communicate with them?
“Do you have a cashflow plan model in place for all your landlords? What does it look like?
“That’s an ongoing annual review that you put in place. It’s irrespective of whether the lender has a fee charging structure that they want to publicise or anything like that.
“This is completely different. It’s taken from the wealth management space, where you’re managing people’s cash.
“So that’s the opportunity to me for the broker because you can charge for that.”
New Government
Aside from high rates, issues surround PTs and lack of support for brokers, BTL is also grappling with a private rented sector (PRS) that has severe shortage of available properties.
However, with a Labour Government now in place, and vowing to tackle rental reform and housebuilding, panellists discussed uphill battle facing Sir Keir Starmer’s cabinet in fixing a PRS plagued by issues.
Rowne said: “The huge problem at the back end is the Government needs private landlords, regardless of the stance that has been taken against them.
“The committed landlords, professional landlords, the good ethical landlord, are actually needed.
“The wider problem here is with the PRS because lenders and brokers both need the healthy PRS.”
Barry Luhmann, head of buy-to-let mortgages at United Trust Bank, said that despite the Government’s historical mistreatment of landlords, they are vital to keeping the housing market afloat.
He noted: “They can’t just keep kicking landlords, because they’ve been kicked a lot – the PRS is so important and that is the problem.”
Without adequate support, Rowne warned that landlords could become mortgage prisoners, potentially leading to a mass sell-off of properties, which “doesn’t solve the problem; it just creates a different problem.”
To address with stock issue, Tolfree noted that despite attempts by previous Governments, housing targets of 300,000 new-builds a year have not been hit “since the 70s.”
“Last year was the first year that there weren’t at least 300,000 planning permissions approved,” he added.
This shortfall, coupled with a decrease in planning permissions, led to a drop in housing supply, driving up rental prices.
Montlake pointed out the failures of housing policy over the past four decades, describing the issues facing the PRS as “deeply rooted.”
Noting that the types of homes being built often do not meet the needs of the population, he said developers are focused on maximising profits rather than addressing demand for affordable housing.
Montlake argued that the Government had missed an opportunity post-Credit Crunch to nationalise house building, which could have led to the construction of affordable and social housing for key workers.
He said: “There’s potentially grounds for a nationally owned house builder to go out and build social housing, proper affordable housing that key workers can afford.
“But what we really need is a long-term plan run someone from the housing industry.
“Until you’ve got the private rented sector, social housing and the personal ownership sector into some kind of harmony and balance, you’re just always going to be chasing shadows.”
With the new Government faced with a formidable task in addressing these entrenched issues, Howes underscored the necessity of a “cross-party” approach to develop sustainable housing policies.
Committed landlords
According to Rowne, while the challenges of last year undoubtedly pushed the majority of amateur landlords from the market, he has seen a shift towards more “committed landlords” dominating the space.
He said: “The amateur landlords have been shaken out of the market in the last few years.
“We’re only generally seeing those committed landlords.
“These are people looking at long-term returns on investment and it’s all part of the inheritance planning for their family.”
Aside from those experienced landlords seeking to capitalise on emerging opportunities, a significant factor influencing landlord decision-making has been Government handling of EPC regulations.
Following ex-Prime Minister Rishi Sunak’s scrapping of rental property EPC requirements, and now with the ushering in of a new Labour Government, many landlords remain in the dark as to whether new minimum EPC policy will be reinstated.
Montlake highlighted that while some landlords are proactively preparing for potential future regulations, this is not yet widespread.
He stated: “There’s got to be a combination of stick and carrot, and the [previous] Government has taken away the stick.”
He called for balanced incentives and penalties to encourage compliance, noting that many professional landlords tend to stay ahead of regulatory changes, maintaining their properties’ rentability and quality.
“Good landlords and a lot of professional landlords always work ahead of the curve,” he added.
Tolfree agreed, noting that professionalism among landlords is often highly valued among renters – with those with a good reputation often renting out their properties before they even hit the market due to high demand.
However, Nicola argued that, in his experience, many landlords have remained reactive rather than proactive, suggesting that a more forward-thinking approach could benefit the market.
Future of buy-to-let
Ultimately, the future of the BTL sector appears to be “cautiously optimistic,” with panellists highlighting both the challenges and abundance of opportunities on the horizon.
Nicola has seen many landlords remain hopeful about the prospect of interest rates decreasing.
He said: “I think it’s going to be interesting to see how they react, because I do think a lot of people are waiting for prices to come down, rates to come down so that they can pounce on those.”
However, he also cited the difficulties faced by amateur landlords, indicating that the next six to 12 months will be an interesting period as the market adjusts.
Rowne said: “It’s a positive market. I think lenders being innovative and positive.
“I think brokerages have adapted, it’s very consultative and not just transactional now in how they approach it.”
Tolfree echoed this, noting resilience and a quicker-than-expected recovery following the troublesome period last year.
He added: “It’s come back way quicker on it than expected. It’s resilient.
“You look at what this sector has faced in the last 18 months and where it is back to already.”
This resilience was further supported by Luhmann’s observation that, despite a slowdown at the end of the previous year, the market has bounced back with record months.
He continued: “At UTB buy-to-let, we sort of tailed off a bit at the end of last year, but now we are back with record months.
“This year has been an optimistic one for the market, but there is an element of wait and see for what the new Government changes.”
Howes and Montlake agreed that the future could spell significant opportunities for brokers as the market continues to evolve.
Howes said: “I think there’s a massive education piece that brokers can get involved in with their landlord clients.”
In his view, this focus could help brokers generate fee income and build stronger relationships with landlords.
Montlake, while acknowledging the market’s fickle nature, highlighted the vast potential within the sector, advising brokers to take extra time with landlords to explore new opportunities.
He concluded: “It’s a £31bn market and for brokers there’s a massive opportunity if you ask the right questions.”