While 2023 presented economic uncertainties, the UK property market appears to be gradually stabilising. While challenges such as rising interest rates and regulatory uncertainties have tested the resilience of buy-to-let (BTL) investors, there are signs that 2024 could be a promising year for those looking to venture into the market.
The UK’s housing market shows resilience
Last year, the Bank of England's aggressive rate-hiking cycle, aimed at curbing inflation, led to a significant increase in the base rate, reaching a 15-year high of 5.25%. For landlords, balancing increasing mortgage repayments with rental income became a concern, but recent activity suggests a positive shift in market dynamics.
Despite challenges, the BTL market has displayed impressive resilience. While many predicted a mass exodus of landlords, a survey by Butterfield Mortgages indicates that this has not taken place, with 87 per cent of landlords either maintaining (53 per cent) or expanding (34 per cent) their property portfolios in the past 12 months.
Many landlords are adapting, with a focus on enhancing property energy efficiency and exploring new options for portfolio expansion. Moreover, forecasts indicating a potential fall in the base rate and a modest increase in house prices have encouraged optimism among landlords for future investment prospects.
Changes to the market
The prospect of the government’s Spring Budget left many in the rental sector unsure. Fortunately, the sector remains largely unchanged. However, the chancellor has announced the abolition of furnished holiday lettings tax relief. This results in the removal of tax breaks which make it more profitable for second homeowners to let out their properties to holiday makers rather than to long-term tenants to rent. As a result, we are less likely to see less short term lets.
Insights from Winkworth
In terms of the Northampton BTL market, Nikki Kooner, Director of Winkworth Northampton observes that contrary to industry predictions, the Northampton BTL market remains healthy.
Nikki commented, “The only landlords we’ve really seen exiting the market have been accidental landlords, who were renting out their previous homes and whose fixed-rate mortgages were coming to an end. Northampton has always had a strong rental sector and while some of our landlords have felt the impact of rising interest rates, as an agency we conduct annual rent reviews and so we have kept the majority of our landlords rent in line with market rates, which has helped to ease the burden of rising mortgage payments.”
She added, “Throughout this time we have placed an extra emphasis on communication with both tenants and landlords which has been instrumental in navigating this period of economic uncertainty. We are optimistic about the coming year with some of our existing landlords expressing interest in expanding their portfolios should the opportunity arise. A drop in the base rate will certainly help to further bolster confidence in an already resilient sector.”
Rupal Patel, Director of Winkworth Shepherd’s Bush and Acton is quietly optimistic about the prospects for the private rental market in his patch.
Rupal shared, “There are positives for the BTL sector – the good news is a lot of landlords still have equity in their properties. While mortgages are going up, they are not growing as much as the industry anticipated – many predicted a 10% base rate by the Bank of England, which fortunately hasn’t happened. Mortgages are on a downward trend and the hype around rental prices increasing hasn’t played out like people thought it would, resulting in relative stability.”
Like Northampton, Shepherd’s Bush and Acton have retained many of their landlords. “We haven’t seen an exodus of landlords – in fact, we’ve seen an 18-20% increase over the last 12 months, with rises on par with last year. A few landlords are selling up, but it tends to be for personal reasons rather than business reasons.”
Rupal noted, “While it isn’t as easy to make money through letting properties right now as it has been in the past, it’s not all negative. Many landlords have benefitted in recent months, and anything we have taken on a renewal typically sees increases of four to five per cent. Mortgages have softened which is motivating people to invest, and some investors are buying through limited companies which can offer tax incentives. The market will be very different in three to five years compared to how it is currently, and landlords that are buying buy-to-let properties now stand to benefit in several years by taking advantage of the current market.”
A promising outlook for buy-to-let in 2024
Although the BTL sector has faced challenges in recent years, 2024 holds promise for investors who are interested in exploring the market. Potential BTL investors can improve their chances of success by being flexible and planning. Focusing on high-demand areas, finding properties with the opportunity to add value, minimising costs by lowering mortgage payments and using allowances where possible will prove beneficial to landlords. Additionally, it will be key for landlords to proactively manage and assess the performance of their properties regularly. Having realistic expectations, being adaptable, and getting support from estate agents can help achieve a good outcome for BTL investors in 2024.
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