Lender wants to work with government on improving PRS
The buy-to-let market faces the challenge of increased anti-landlord feeling, together with an ever more political private rented sector - suggests leading lender The Mortgage Works (TMW).
Landlords have told TMW, the buy-to-let mortgage lender of Nationwide Building Society, that regulation and tax changes, plus escalating interest rates and high inflation, are curtailing their property investment opportunities.
In Q1 2024 there were 41,149 new buy-to-let loans advanced in the UK, worth £7.0 billion, according to trade association UK finance. This was down 16.7% by number and 17.3% by value, compared with the same quarter in the previous year.
TMW’s senior manager of buy-to-let mortgages, Joe Avarne, does believe, though, that the market is stabilising. “Higher interest rates coupled with high inflation have undoubtably been the key challenges for landlords over the last 18 months, eroding, or in some cases, wiping out profitability and inhibiting market activity,” Avarne (pictured left) told Mortgage Introducer.
“The consistent feedback we hear from landlords is the strain caused by the last several years of regulation and tax changes, coupled with higher interest rates, is limiting their ability to invest in properties which ultimately results in a worse situation for tenants. The volatility of the last 18 months, and subsequent pressure on landlord finances, has really demonstrated the value of the whole of market advice that a broker provides.”
He continued: “An additional challenge has been a growing anti-landlord sentiment, with an increasing politicisation of the private rental sector in the context of the wider housing market, fuelled by examples of poor quality, substandard housing.”
The lender, which has this week cut its rates on various products by up to 0.45 percentage points, has publicly committed to ensuring that 100% of its new lending meets the government’s Decent Homes Standard.
What is the average UK buy-to-let rental yield?
UK Finance’s figures suggest the average gross buy-to-let rental yield for the UK in Q1 2024 was 6.88%, compared with 6.23% in the same quarter in the previous year. At the end of Q1 2024 there were 13,570 buy-to-let mortgages in arrears greater than 2.5% of the outstanding balance. This was unchanged from the previous quarter but 93% higher than in the same quarter a year previously.
TMW is calling on the government to provide greater certainty for good landlords with a moratorium on all but essential new regulation for a limited period following the introduction of the Renters’ Rights Bill. This, it believes, will enable Labour to assess the impact of these reforms on the market, to understand what changes may be needed in the future.
Furthermore, TMW wants ministers to incentivise landlords to carry out energy efficiency work by allowing energy performance improvements to be deductible against rental income for tax purposes. It is also seeking appropriate funding to be available to deliver an additional 90,000 homes per year into the social housing sector.
Read more: Specialist lenders unveil new BTL products and rate cuts
How could the government support the private rented sector?
The lender is urging Prime Minister Keir Starmer and his colleagues to reintroduce landlord mortgage interest relief and review the additional 3% landlords have to pay on top of their normal stamp duty payment. “We need to consider the impact these have had on the prospects of both current and future landlords,” Avarne suggested.
He noted that the market was more stable and robust overall, following a strong start to the year.
“I suspect now that, following the election, many landlords are waiting to see the detail of legislative and tax changes before expanding their portfolio,” he said. “With rates well down from their peak last year and inflation in a much better place, the pressure on landlord finances has thankfully started to ease.”
Avarne hopes that with improved inflation, the market will open up further, supported by a gradual reduction in the Bank of England base rate.
“It’s a really hard one to call due to the sensitivity from external factors,” he said. “Beyond that I would like the Renters’ Rights Bill to finally be passed, with appropriate court reforms to enable landlords to tackle problem tenants, as we do believe the reforms it contains will strengthen the private rental sector to the benefit of both landlords and tenants.”
Damian Thompson (pictured right) – TMW’s director of landlord – believes the BTL market, while ever changing, is currently more competitive than ever.
“Lenders such as TMW need to look beyond products to differentiate itself from the pack,” Thompson observed. “With 4.6 million households in England, which are privately rented, representing close to a fifth of households in England, there are a huge number of people dependent on the private rented sector.
“One of the challenges we’re keenly addressing is to ensure that policymakers understand the vital part landlords play in their partnership with businesses, to support the UK in providing accommodation needed to support their employees. I firmly believe that collaboration is key, to ensure we weather these challenging times.”
Thompson said - from his perspective - TMW’s business is not just about selling buy-to-let products, it’s about acting to provide homes for all, and creating a healthier, fairer private rented sector where all parties involved can flourish.
“To do that, you need to be innovative and adaptable,” he shared. “I believe there are numerous opportunities to achieve this, which I’m really excited about.”
