Rents also grow at rapid pace
While the number of homes bought by landlords dropped significantly in 2023, a record number of 50,004 buy-to-let companies were established in the UK during the year, residential estate agent Hamptons has revealed.
The number of limited companies established to hold buy-to-let properties continued to rise last year, surpassing the previous record of 48,520 set in 2022.
Following the mini-budget’s aftermath, the first six months of 2023 witnessed a marginal 2% decline in new buy-to-let incorporations compared to the same period in 2022. However, as investors grappled with mounting mortgage rates, the latter half of the year experienced a 9% surge in the establishment of limited companies dedicated to holding buy-to-let properties.
Scotland led the way with an 8.4% year-on-year increase in new company establishment, a surge attributed to the significant variance in tax rates between individual landlords and limited companies. By contrast, the South West and North East were the sole regions to record a modest decline in new limited company setups, though both regions witnessed an increase in the number of properties owned within a corporate structure.
As of the beginning of 2024, the active limited companies designed for holding buy-to-let property numbered 345,426, marking an 11.6% rise from the previous year. Notably, 68% of these companies were established between 2017 and 2023, coinciding with the phased implementation of tax changes. In total, these companies possess 615,077 properties across England and Wales, an 82% surge since the end of 2016.
The surge in buy-to-let incorporations predominantly stems from smaller landlords, with a notable 21.9% increase in the number of homes held by companies with a single property over the last year. In contrast, companies owning 20 or more homes exhibited faster growth in mortgage charges than in the number of homes.
Limited companies dedicated to buy-to-let properties now constitute 24% of all properties held within any form of limited company structure, a rise from 16% in 2016. Over the period from 2016 to the end of 2023, the total number of properties owned by limited companies, not exclusively for buy-to-let purposes, saw a 21% increase.
Rental growth also hits record high
The year 2023 also witnessed unprecedented growth in rental prices, with the average rent on newly let properties in Great Britain surging by 10.2% year-on-year in December, marking the highest end-of-year growth since 2014. This outpaced the previous record set in December 2022 by 2.5%.
The consistent upward trajectory of rental growth, outpacing inflation for nine consecutive months, translated into an average monthly difference of 3.5%. And while rental growth has moderated slightly from its peak in August, it remains ahead of inflation.
Tenants in the East of England faced the steepest rent hikes, with the average rent on a newly let property reaching £1,299 per month in December, a record 13.3% higher than the previous year.
Looking forward, as mortgage rates decline, the pressure on rents is expected to ease. Fewer landlords are anticipated to face significant increases in remortgaging costs, particularly those who refinanced in 2023.
However, the lower rates might also contribute to a reduction in demand as more renters transition to homeownership. Despite this, rental prices are forecast to continue rising at a pace exceeding the pre-pandemic average, with a projected 7% increase in 2024, followed by 5% in 2025 and 5% in 2026.
“Despite last year’s slowing sales market, there was no let-up in landlords rushing to incorporate,” Aneisha Beveridge (pictured), head of research at Hamptons, commented. “Rather, the record number of companies set up to hold buy-to-let homes suggests a long-term commitment from landlords - particularly given the upfront costs associated with incorporating.
“The growth has been driven mostly by existing landlords moving properties into a corporate structure to shelter themselves from higher interest rates. Meanwhile, the number of new landlords setting up shop has remained relatively muted. Longer term, the current tax regime could push half of all rental homes into a limited company, significantly reducing the existence of landlords who own buy-to-lets in their personal name.
Beveridge added that pressures on the rental market show few signs of abating, with rental growth having been more persistent than wider inflation.
“Slightly lower mortgage rates in 2024 should alleviate some of these pressures and take some of the heat out of the rental market, but tenants will probably continue facing bigger rent increases than they did pre-COVID,” she concluded.
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