The buy-to-let sector in the UK is experiencing significant shifts, with landlords facing increased financial pressures and regulatory changes. As of this month, the number of buy-to-let mortgage products available has more than doubled from 988 in October 2022 to 2,246. Despite this increase in options, the average two-year fixed rate mortgage for buy-to-let properties stands at a steep 5.95%. This rise in rates is largely attributed to the Bank of England's decision to hike its base rate ten times since last year, driving mortgage costs higher.
In January 2023, the country saw a 19% increase in homes available to rent compared to the same period in 2022. However, this figure still represents a 57% decrease from the availability seen in January 2019. The shortage of rental properties has led to intense competition among families seeking homes, with rents soaring as a result.
“We now have 10 families fighting for one property … Rents are really high,” stated Amy Cowan, highlighting the struggle faced by potential tenants.
The regulatory landscape for landlords is also changing. The government, under the leadership of Michael Gove, plans to strengthen tenants' rights through greater regulation. This includes proposals to abolish section 21 "no-fault" evictions, which would prevent landlords from evicting tenants without a valid reason. These proposed changes have raised concerns within the landlord community.
Ben Beadle, Chief Executive of the National Residential Landlords Association, remarked, "The government's proposals were 'spooking the bejesus' out of his members."
The financial strain on landlords is exacerbated by rising mortgage repayments. The average monthly repayment for buy-to-let landlords is expected to increase by approximately £175 by the end of this year. Furthermore, a fifth of landlords with mortgages will face hikes of over £300 in their monthly payments. This financial burden has caused anxiety among many landlords.
“Lots of landlords are very anxious, to the extent that some are saying they cannot afford their properties,” commented Hadi Khalisadar.
The pressure of increased mortgage costs is causing some landlords to reconsider their investments. In 2022, there were 35,000 more landlords selling properties than buying them. A significant portion of these sales may be purchased by other landlords or first-time buyers.
Aneisha Beveridge noted, “If landlords were to sell, then I think about a third of sales will be bought by other landlords, and some will get bought by first-time buyers.”
The current climate has left many small-scale landlords feeling overwhelmed by their financial commitments.
Harris expressed his concerns by stating, “We have a big mortgage and, on top of that, an outlay every month to cover the expenses. We are just trying to breathe through it, as we are hoping there will be some respite.”
The government's intention to consolidate the private rental sector into fewer but larger landlords has added to the uncertainty for smaller landlords. MPs have pointed out that smaller landlords are more likely to exit the market due to their inability to absorb rising costs and risks.
“We were told smaller landlords would be much more likely to leave the sector than larger ones as they would be less able to afford the increased cost and risk of letting, and that policy since 2015 had been designed specifically to do this,” explained a group of MPs in their report.
The situation has prompted calls for the government to review recent tax changes affecting the buy-to-let market.
Clive Betts remarked, “We share some of the concerns expressed about the reduction in the size of the private rental sector, and we recommend that the government review the impact of recent tax changes in the buy to let market with a view to making changes that make it more financially attractive to smaller landlords.”
Despite these challenges, experts believe that while there may be risks, it is not the end for buy-to-let.
Aneisha Beveridge stated, “Most landlords with mortgages are reading up on them and know rates will come down. They will be nowhere near as low as they used to be, but down a bit.We will see more landlords sell than buy this year, and possibly next year, too, so there are definitely risks, but I would not say it is the end of buy-to-let.”