Higher interest rates and mortgage costs, plus greater legislation and taxation potentially squeeze profits
The rental market has long been seen as a shrewd move for savvy investors – a way to cover your mortgage payments on a property that, in the good times, is increasing in value, while potentially generating extra income.
A decline in profits, due to higher interest rates and mortgage costs, plus tightening legislation and less favourable taxation, have all raised doubts about the business case for buy-to-let properties, however.
In addition, the new Labour government is reintroducing energy efficiency targets, which landlords must fulfil by 2030, by achieving grade C Energy Performance Certificates. This, of course, presents an additional, and potentially costly, pressure in terms of the improvements property owners will have to make.
For Michael Staton (pictured left), director of Staton Mortgage and Protection Specialists, buy-to-let remains a ‘massive’ part of his business. But he acknowledged that it can feel as if the odds are stacked against a landlord.
“What is the incentive to becoming a landlord now?” Staton questioned, “because you’re buying a property that you shoulder the burden of all the liability on and then giving all the living rights to the tenant. If they decide they want to stop paying you rent, what can you do about it? You can pay £8,000 to take them to court – is it worth it? Probably not.”
Staton believes that landlords must approach the market as a long-term investment.
“If you look at buy-to-let as a tool to subsidise your monthly living, you’re in the wrong industry, and you are on to a failure anyway because the housing industry has never been stable, it’s not stable,” he said.
“There’s an element of risk to it, a massive element of risk to it, and for me, being a buy-to-let landlord is a widely accepted form of gambling. Sometimes you have got to take the rough with the smooth - and at the moment we’re going through the rough.”
He added: “What I am noticing, all these good landlords that are in it for the long haul. I do think they’re going to be the winners. You’ve got to look at the bigger picture.”
What impact is landlords selling up having on the buy-to-let market?
Wendy Docherty, director of mortgage broker SPF Private Clients, noted that the buy-to-let market is reducing as smaller, novice landlords - unable to afford tax increases - decide to sell up.
“This will increase rents further for the landlords who remain, so it presents other opportunities,” said Docherty (pictured centre). “It is harder to make money out of buy-to-let so the correct tax structure is more important than ever.”
She shared that many professional landlords remain keen to expand their buy-to-let portfolios. They are waiting to see what Labour has in store in the autumn budget, and if property prices and interest rates fall further over the coming few months, presenting them with better opportunities.
“It’s difficult to be too optimistic at the moment, as nobody knows for sure what the budget will bring,” Docherty said. “It’s a waiting game. There is optimism around reducing mortgage rates, however.”
Read more: Is buy-to-let the punching bag of the industry?
How are landlords feeling about the buy-to-let market?
Rob Stanton, director of sales and distribution at Landbay, pointed to recent research by the buy-to-let lender. Involving around 1,100 landlords, it explored various issues, from rent increases and property transactions, to management practices.
“The key takeaway was that while most landlords may not be overly optimistic about the short-term outlook, they remain quietly confident about the long term,” said Stanton (pictured right).
“Many consider themselves in the market for the long haul, with nearly half of the respondents indicating an intention to purchase property within the next 12 months. Most of these prospective buyers cited portfolio expansion as their primary motivation for buying.”
Tenant demand and rental yields are strong across the country, Stanton reported.
“The ratio of tenants to available properties has increased, presenting greater opportunities for expanding or enhancing existing portfolios,” he noted.
Stanton observed that the Labour government had outlined its intentions for a new Renters’ Rights Bill in the recent King’s Speech.
“This proposal aims to build on measures to enhance tenants’ rights, which were initially included in the previous government’s abandoned Renters Reform Bill,” he explained. “Ensuring that tenants have the right level of protection and live-in, safe accommodation is, of course, vital. Most landlords take pride in providing decent homes and simply want to do the right thing.
“However, it is equally important that landlords are given the certainty that any reforms will be fair and implemented in a timely manner. Landlords should be recognised as part of the solution to the housing crisis, not the problem. The key now is to maintain rents at affordable levels while retaining much-needed rental properties. To achieve this, it is crucial that we support good landlords, ensuring they feel confident enough to continue investing in the sector.”
The buy-to-let market does remain an attractive long-term investment strategy, in Stanton’s view. With affordability still a significant challenge for many prospective residential buyers, and rental demand consistently outstripping supply, there is a strong and growing pool of tenants across the country, he suggested.
