What are landlords' views on the future of their buy-to-let investments?

Few would argue that 2023 was a transitional year for the UK property market. The Bank of England continued its rate hiking cycle through the first eight months of the year, increasing the base rate by 1.75% between January and August; following that, the base rate resided at 5.25%, a 15-year high.

The market as a whole needed to adapt to the elevated cost of borrowing, which in turn impacted buyer demand and spending power.

Landlords also experienced numerous challenges when managing their buy-to-let property portfolios, most notably balancing higher mortgage repayments against the rents they charge. An estimated 49% of buy-to-let landlords found the rise in interest rates a challenge in terms of managing their property investments, according to Butterfield Mortgages.

However, with the hold on the base rate and inflation continuing to fall, a sense of positivity appears to be returning within the buy-to-let market with 2024 upon us.

How have landlords navigated a turbulent period for the BTL market?

Alpa Bhakta (pictured), chief executive of Butterfield Mortgages, said in light of the economic headwinds of the past year, much was made about the declining appeal of buy-to-let investments and the prospect of a mass exodus of landlords from the buy-to-let market.

“However, our survey has shone a light on landlord sentiment towards the rental market, with the results revealing a much more stable and resilient buy-to-let sector than has typically been portrayed in the media,” she said.

When asked about how they managed their portfolios, Bhakta said 87% of landlords revealed that in the past 12 months, the size of their property portfolio either stayed the same or increased.

Moreover, even though interest rates precipitated a significant increase in many landlords’ mortgage repayments, Bhakta said, 51% opted not to increase the rent they charged in the last year.

In part, she added that this will have been due to the fact that 62% of landlords said they are uncomfortable about upping rents during the cost-of-living crisis.

However, Bhakta believes it also demonstrates the resilience of many property investments in the face of such a challenging economic landscape.

“That said, some landlords were always going to have to make some adjustments in the new high-interest rate environment, with 37% indicating that they have raised rents in the past 12 months,” she added.

Elsewhere, Bhakta said the survey also found that, in the past two years, 45% of landlords have invested in improving their properties’ Energy Performance Certificate (EPC) rating.

“Although the new EPC regulation has been put on hold for now, the fact landlords have been willing to invest in their properties’ energy efficiency standards, rather than opting to sell the assets, again indicates a longer-term commitment to the buy-to-let market,” Bhakta said.

What are landlords’ views on the year ahead?

Looking at 2024, Bhakta said it appears that many landlords believe the economic headwinds that have held property investments back in the last two years are now receding.

“According to the survey, 47% of landlords believe the base rate will fall in 2024, while a further 32% think that house prices will start to go up again,” she said.

More generally, Bhakta said most, 65%, of buy-to-let landlords are optimistic about the future performance of their property investments, both in terms of capital growth and rental returns.

This, she added, is reflected in their plans for their property portfolios, with 26% planning on increasing the size of their buy-to-let portfolio in the coming 12 months, with 66% intending to keep it the same size.

“The research paints a positive picture; however, that is not to say some uncertainty does not remain in the buy-to-let sector,” Bhakta said.

With a general election on the horizon, Bhakta said 51% of landlords plan to await the outcome before committing to any decisions about how to manage their property investment portfolio in the long-term.

“Moreover, 62% are keen to see greater consistency and clarity over government policy that affects landlords, which likely reflects some notable flip-flopping over potential buy-to-let regulations in 2023,” Bhakta said.

Supporting landlords through a time of change

It is encouraging, Bhakta said, that so many landlords have a positive, optimistic mindset in spite of the challenges we have seen in the buy-to-let sector over recent years.

“As the market continues to recover and economic conditions ease, it is imperative that landlords can get the support they need to manage their portfolios and future investments with confidence,” she said.

For one, Bhakta said landlords will need a high level of flexibility, certainty, and customer service from their brokers and lenders.

“Indeed, brokers will play a crucial role in the coming year, those who can leverage their expertise and market knowledge to guide landlords towards the right mortgage products will likely prove invaluable,” Bhakta added.

Furthermore, with uncertainties remaining, she said lenders and brokers that are able to effectively communicate complex information in a clear and understandable way will be best placed to help their clients invest with confidence.

“The feeling among landlords seems to be one of optimism; however, amidst ongoing speculation around the future of the buy-to-let sector, lenders and brokers must be resolute in their commitment to supporting their clients’ investment plans in 2024,” Bhakta said.

Are your landlord clients positive about the future of their buy-to-let investments? Let us know in the comment section below.