Some are saying that buy-to-let is dead (again). While industry data does highlight the challenging conditions of last year, there’s clear evidence that things are looking up.
Unless you have been in hiding for the last 12 months you will have seen articles proclaiming that it is dead.
Recently I have noticed more of these opinion pieces popping up and, having a vested interest in the health of the private rental sector (PRS), I am quick to read what the journalists and commentators have to say.
The recent round of doom-mongering pointed to figures released by UK Finance showing a fall in the number of outstanding buy-to-let mortgages from 2.039 million in Q1 2023 to 1.98 million in Q1 2024. This marked the first fall in the number of outstanding mortgages to landlords since buy-to-let mortgage were introduced in 1996.
Even the most optimistic will struggle to argue with such a compelling statistic, but it is important to view this in context.
The UK economy grew by just 0.1% throughout 2023, marking the worst growth since 2009, excluding the Covid pandemic period.
Looking at the context of the market
So why was buy-to-let lending lower last year than in 2009?
A key difference lies in interest rates that were between 0.5% and 1.5% during 2009 as the Bank of England used successive reductions from the end of 2007 to counter a concerning mix of high inflation and mortgage rates with falling property prices, a tactic utilised by other central banks around the world to in response to the global financial crisis (GFC).
Compared to turbulent 2023, the period following the GFC had favourable economic conditions and a more stable political environment. The tax and regulatory regime was also less restrictive in 2009, with the decade that followed the GFC seeing the introduction of more stringent lending criteria, the broadening of licensing requirements and an increase in lettings business taxation.
But, fast forward to now and we see a much more positive picture.
There’s still life in buy-to-let
Our recently published Q3 trading update revealed how strong our buy-to-let application flows are, with a pipeline that increased to £888.5m during the quarter, significantly higher than the £594.6m we reported in September 2023.
Our latest PRS Trends Report, covering the second quarter of the year reveals that average yields reported by landlords have hit a 10-year high of 6.3%. Driven by longstanding high levels of tenant demand, this follows steady growth from the 15-year low of 5.2% recorded in the first and second quarter of 2023.
This is helping landlords to stay in the black, with 85% reporting generating a profit from their lettings businesses in the second quarter of the year, a one percentage point uplift in average overall profitability since the first quarter. During the same quarter in 2023, average profitability fell to a low of 76%.
These metrics are lifting landlord confidence, something that will undoubtedly have been boosted by the recent mortgage rate reductions and all of this came before the recent base rate cut.
So, whilst we can’t shy away from the fact that last year was a challenging one for the market, to proclaim that buy to let is dead seems like more of the sensationalist reporting that we’ve become accustomed to in the industry.
An undeniable fact remains that privately rented homes are relied on by millions of people in the UK today and, with factors such as a growing and aging population and a shortfall of social housing, millions will do tomorrow.
