The Buy-to-let market in 2024: Buy-to-let Outlook

Despite economic challenges, political uncertainty and the cost-of-living crisis gripping the UK, the Buy-to-Let (BTL) market remained remarkably robust over the last few years.  

Though mortgage rates have risen significantly following the Bank of England’s base rate changes, this has not deterred professional landlords, who in many cases, are in a better position than other prospective buyers. Indeed, with house price growth slowing, professional investors with the capital available have been able to snap up good deals. The market has perhaps not been this favourable for a buyer since 2019. For those landlords who have focused on low yielding rental properties, often those with one or two properties, the interest rate environment has made the market more challenging. However, there remain good opportunities for investment for professional investors, with many expanding their portfolios at this time.   

In addition, tenant demand has remained strong. The latest survey from RICS shows that tenant demand has continued to rise, whereas the fresh supply of rental property is going in the opposite direction. This misalignment continues to put pressure on the sector, and force rental prices up as a result.  

Data from the Office for National Statistics shows that the annual percentage change in rents has increased across all regions in 2023, including in London, and that in the 12 months to December 2023, rental prices for the UK (excluding London, which increased by 4%) increased by 4.3%, up from an increase of 4.2% in November 2022, which is the strongest annual percentage change since November 2015. Hometrack data, more focused on new lettings, reports a much higher 12.1% annual increase in rents suggesting landlords are increasing rents more quickly when re-letting to a new tenant.

Evidently, buy-to-let continues to be a viable and attractive prospect for investors.  

There are options for investors to consider which may help to combat any further rises to interest rates, such as a property investment plan that incorporates House in Multiple Occupation (HMO) properties, while there is current uncertainty about when interest rates will go down. An HMO is a property in which three or more tenants live in a shared capacity, forming more than one household. Though it is more of a complex investment plan, HMOs can allow for higher yields as more than one household contributes to the rental payments. Though the overall rental price for the property may be high, it is likely cheaper for the tenants compared to renting a property separately.  

This provides landlords with more room to increase rental payments to necessitate higher yield, whilst remaining more affordable for the tenant than their own private rental. It can also offer more protection against tenants falling into arrears or being unable to make rental payments. As renters continue to grapple with the cost-of-living crisis, it’s also likely that we’ll see fewer single lets and more HMOs over the course of the year.

Lenders are also continuing to offer fixed-rate buy-to-let mortgages, which are a good way for buy-to-let investors to mitigate the effects of rising interest rates and allow some stability with yield rates and rental prices. The fixed rate mortgage market has settled since the disruption of October 2022 with rates now falling.

Shawbrook will consider buy-to-let mortgages for first-time landlords and also offer an Energy Efficiency Discount if the EPC rating of your new investment is below a ‘C’ as a part of our ongoing commitment to providing long-term, sustainable solutions to support landlords to improve the energy efficiency of their investment properties.  

Another promising factor is the rise of the Build-to-Rent (BTR) model which is becoming increasingly popular. BTR developments are new residential properties that are built solely for renters. Data from the British Property Federation and Savills shows that by 2032, 8% of UK rental homes will be purpose-built compared to 1.5% in October 2022 when the research was released. Not only does this increase opportunity for investors, but it also provides more peace of mind as investors take on a modern new build with lower running costs, rather than having to face significant refurbishment on older properties.

Though the property landscape still faces pressures and challenges from a turbulent economy and the impact this has on consumers, it’s clear that opportunity still remains in the buy-to-let market, with lenders still offering competitive rates and products to support the market. Brokers can assist landlords by supporting them with their investment plan, ensuring that the best rates are identified, and by being on hand to offer advice and guidance to landlords throughout their partnership.