Positive prospects for the UK buy-to-let market in H2 2024

Originally published by Financial Reporter

Steve Cox, our chief commercial officer, explains why he thinks the next six months look to be positive for the buy-to-let sector.

This is being written just before the General Election polls open, which give us all perhaps a sense of uncertainty about what the future might bring.

What we do know is that, if the polls are right, then we’ll have a Labour Government for the next four/five years and, that being the case, let’s hope they can marry up the needs of both the private rental sector and the owner-occupier space in order to deliver a housing market that works for every stakeholder.

It is an unenviable task for any Government, but the job has to start somewhere, and the sooner politicians and those in power recognise the importance of both sides of the property coin, the better for all of us.

In terms of what might be coming over the horizon, from a buy-to-let sector point of view, the next six months at least look to be pretty positive. Certainly, the latest data from our Q2 2024 Rental Barometer suggests a better outlook.

Despite some initial challenges, such as volatility in the swap rate markets and subdued housing price growth, several key indicators point to promising opportunities for buy-to-let mortgage advisers and their landlord clients, particularly those looking to expand their portfolios.

The most striking positive sign is the notable increase in property purchase business. The share of purchase applications, as a total of all those received, rose significantly from 30% in Q1 to 42% in Q2 2024.

This increase indicates many landlords are actively seeking to acquire additional rental properties, signalling confidence in both their portfolio, and the market’s, future. This trend is especially important for advisers, as it highlights a growing demand for mortgages tailored to property acquisition, presenting a substantial opportunity to support landlords in their investment endeavours.

Despite the Bank Base Rate (BBR) remaining steady at 5.25%, the slight increase in average fixed-rate products within the limited company peer market – from 5.52% to 5.73% for five-year fixes and from 5.60% to 5.68% for two-year fixes – does not seem to have deterred landlords.

And while our own rates also saw minor upticks over that period, with the two-year fixed rate moving from 4.89% to 5.02% and the five-year fixed rate from 5.12% to 5.52%, just recently we have been able to cut rates, and expect to do so further, especially if we get that much-anticipated BBR cut in August/September.

Additionally, our data underscores the growing dominance of limited company landlords, who now represent 80% of all applications in Q2 2024, up from 67% in Q1.

This rise reflects a strategic shift among landlords towards using limited company structures to optimise tax-efficiencies and manage their portfolios more effectively. Advisers can of course leverage this trend by offering specialised advice and products that cater to the unique needs of limited company landlords, particularly in areas of the market where they are now more inclined to buy, such as HMOs, multi-unit blocks and the like.

The average portfolio size among landlords remains robust, with an average of 11 properties per landlord. This stability suggests experienced landlords are staying committed to the market, undeterred by short-term fluctuations. Moreover, 55% of applications came from landlords with four or more properties, indicating a substantial base of seasoned investors who may be looking to further expand their holdings.

Rental yields have also shown a positive trend, with the national average increasing from 6.6% in Q2 2023 to 7.6% in Q2 2024. This rise in yields is a strong incentive for landlords to continue investing in rental properties, as it enhances the return on their investments.

The North East stands out with the highest yields at 10.1%, followed by the North West and Wales, which saw significant year-on-year increases. Advisers should highlight these regions when discussing potential investment opportunities with clients, particularly those looking to maximise rental income. We’ve seen in recent years that landlords are more inclined to look beyond their traditional regional base when it comes to properties that can deliver the yield they require, and advisers should be able to use our information to support that.

The data also indicates tenant demand remains strong and this is clearly feeding into higher rents, with Greater London achieving an average monthly rent of £2,024 per property, followed by East Anglia at £1,594. Even the more affordable regions like the North East, with an average monthly rent of £768, provide attractive yield opportunities due to their lower entry costs. This regional rental performance can guide advisers in recommending strategic investment locations based on their clients’ financial goals and risk tolerance.

In summary, while the Q2 2024 Rental Barometer highlights some challenges in the buy-to-let market, we believe it also points to significant opportunities for growth and investment.
The increase in property purchase applications, stable portfolio sizes, rising rental yields, and the dominance of limited company structures all signal a resilient and potentially lucrative market for the second half of 2024.

Buy-to-let mortgage advisers are well-positioned to capitalise on these trends by offering tailored advice and solutions that align with their clients’ investment strategies, and by working with specialist lenders like Fleet in order to provide the product solutions those clients need. As landlords seek to expand their portfolios, advisers have a real and ready opportunity to play a crucial role in guiding them through the complexities of the market, ensuring they make informed and profitable decisions.