I read with interest a comment piece in the Telegraph from a London-based broker earlier this month, in which they called the death of the buy-to-let (BTL) market.
Not to be glib or complacent, but I have heard predictions of BTL’s demise ever since I joined the mortgage industry over 20 years ago.
Challenges have been a fact of life for BTL and landlords
And during that time the sector has withstood the dotcom bubble burst, the Iraq war, the global financial crisis, the coalition government’s austerity agenda, the Brexit referendum and prolonged implementation, the introduction of the stamp duty surcharge, changes to mortgage tax relief, tighter regulatory rules and the Covid pandemic — to name but a few.
So many myths and misconceptions are associated with BTL; a state of affairs that has dogged it since its early days. I’m amazed it is still viewed by many as a flash in the pan — a risky mortgage product utilised by chancer investors.
Nothing could be further from the truth. BTL is close to marking its 30th year and is on the cusp of becoming a product with £300bn of outstanding mortgage balances.
The sector has adapted, evolved and grown
It is a mature, seasoned financial product that has proved its resilience through numerous economic cycles and has delivered a better arrears performance than that of the owner-occupied market for most of the past 20 years.
The majority of landlords, particularly those with mortgages, manage their portfolio well, improve their properties and provide good homes to their tenants. They invest with a long-term view and have sensible and realistic expectations of returns.
UK Finance data recently showed that BTL lending had hit a record level in 2022, fuelled by a surge in remortgaging but also by strong purchase activity.
For professional landlords this is their livelihood, and this group is taking the opportunity to acquire new property in a softer house-price environment
Total lending hit £55.7bn during the year, with remortgaging accounting for £37bn, up from £27.8bn in 2021. New purchases totalled £17bn, down slightly from £17.8bn.
Three arguments
The notion that the market is dead centres on three arguments: landlords are selling up in droves, nobody is buying and the numbers no longer add up.
Taking the middle point first, clearly the UK Finance 2022 numbers don’t capture the fallout from the disastrous mini-Budget, which impacted all areas of the mortgage market. Purchase business volumes in 2023 will be lower than last year’s numbers, just as 2022 was lower than the previous year.
As for the claim that BTL investment is no longer making financial sense, landlords are making it work for them
However, landlords are still buying in numbers, although I believe we may see a further acceleration of a longer-term trend: the growth of the portfolio landlord over smaller-scale operators. For professional landlords this is their job, their livelihood, and this group is taking the opportunity to acquire new property in a softer house-price environment.
At the amateur end, or for those who wish to enter the market for the first time, the current environment may not be conducive to investment and we could see this cohort sit on their hands until a clearer economic picture emerges.
UK Finance data recently showed that BTL lending had hit a record level in 2022
With regard to landlords selling, I don’t observe any mass exodus, albeit Hometrack data shows that the proportion of property previously listed for rent has fallen from the highs of last summer.
Product rates have been coming down and product availability going up since the mini-Budget. Remortgaging landlords are favouring longer-term, five-year, fixed-rate products again after the growth in popularity of variable deals and they are adapting well to a higher interest rate environment.
As for the claim that BTL investment is no longer making financial sense, landlords are making it work for them. That could mean putting more of their own equity into the proposition, but they are finding solutions.
I’m amazed BTL is still viewed by many as a flash in the pan
Additionally, most landlords who have remortgaged haven’t experienced the 150%–200% increases in interest payments that have been reported in the media. The reality is far more muted although, like those in the owner-occupied space, they are of course having to contend with a rise in mortgage costs.
There is no doubt the past six months have presented challenges for landlords. But challenges have been a fact of life for BTL and landlords over the past 25 years, during which time the sector has adapted, evolved and grown.
Richard Rowntree is managing director of mortgages at Paragon Bank
This article featured in the April 2023 edition of MS.
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