What could move the ‘landlord activity’ dial?

Originally published by Best Advice

Importantly, as we move through the Spring months, there are plenty of positive indications that 2024 can strengthen in terms of activity levels within the buy-to-let space, and that we might be just at the start of a growing market.

Of course, we can’t deny that the market remains difficult, and that landlords in particular, while wanting to add to portfolios, are still somewhat hampered by a range of factors, not least pricing remaining higher than we would like.

However, there are still plenty of market fundamentals that make property investment a strong option for many, and will not only keep existing landlords invested, but where possible, allow them to eye up opportunities to add to portfolios.

The major one of course remains tenant demand which continues to drive activity in the private rental sector (PRS), especially when compared to supply availability, and has kept rental yield levels strong.

Our own Rental Barometer Index shows yield figures for all the regions we lend within. Comparing the last two quarters, we can see that only three regions have shown falling yield, and only then by slim margins. Those regions are the North West (down from 8% to 7.9%), the South West (down from 6.3% to 6.2%) and Wales (down from 7.7% to 7.4%).

The other seven regions all show a quarter-on-quarter increase in yields with Yorkshire and Humberside topping 8%, and the lowest yield being 5.9% in – unsurprisingly – Greater London.

However, as you might also expect, our data shows the highest average monthly rent per property (£2,111) is generated within Greater London, closely followed by the South East at £1,988. It is again, not surprising, to see that the Northern regions tend to have the lowest average monthly rent per month, averaging £718 across those areas.

Yields have course needed to be strong in order to meet rising monthly mortgage payments created by a higher rate environment, but we might also see further movement here which could drive rates lower, making mortgages more affordability, and improving yield further.

We talk a lot about what can move the dial in terms of the buy-to-let sector? Clearly, mortgage product rates have the potential to do this on a fairly significant scale. At the end of 2023 and start of 2024 we saw some clear cuts to pricing, and this woke the market up, with landlords recognising they could secure lower borrowing costs.

While those rates did increase and have plateaued since, we could be only a matter of months away from a Bank Base Rate (BBR) cut, and I would anticipate the closer we get to that, the more we’ll see swap rates inching down.

Of course, world events – not least what is happening in the Middle East right now – do have the capacity to shift the dial on this, particularly in terms of gas and oil pricing, so we should be factoring this into any inflation fall, followed by a rate cut, but a more positive rate outlook is certainly possible. We should all expect the unexpected, but all things being equal, I am quietly confident we are moving into a lower rate environment, and that will clearly benefit landlords and their advisers.

So, what else might shift the landlord activity dial? I read research recently which suggested that, when it came to stamp duty changes, there were two borrower demographics that would benefit most – buy-to-let landlords and downsizers.

It would be hard to disagree with this. As we have seen a number of times, particularly in relation to landlords, when presented with an opportunity to save, what can be, a considerable amount of money on stamp duty taxes, this group tend not to shy away from bringing forward purchases in order to take the full benefit.

Of course, landlords have needed to factor in the extra 3% stamp duty surcharge for purchasing ever since it was introduced in 2016. But when that a stamp duty holiday has presented itself, landlords have clearly recognised the savings they can make, and have acted upon it.

It’s fair to say that should the Government act again in this area – and we are led to believe there will be another Budgetary ‘fiscal event’ in the autumn – then we would anticipate a similar result, and landlords will prioritise purchases before any deadline that is presented. Or, dare I say it, should there be a permanent change then this will, in my view, encourage landlords to act sooner rather than later.

This is a view of a possible future but it is not outside the realms of possibility. In the meantime, we can continue to support advisers and their landlord borrowers, particularly in the remortgage space, but also increasingly in terms of purchase activity. We know that, the vast majority of portfolio landlords don’t just want to stay invested, they want to expand the number of properties they own and are increasingly looking at specialist options and therefore specialist finance requirements. Make sure you work with a specialist lender to deliver what they need in this important area.