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Reports of the ‘death’ of the UK buy-to-let sector have been greatly exaggerated – Davies

by: Kate Davies, executive director of Intermediary Mortgage Lenders Association (IMLA)
  • 09/06/2023
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Reports of the ‘death’ of the UK buy-to-let sector have been greatly exaggerated – Davies
“The death of buy-to-let” is a phrase which has appeared often in recent headlines, with breathless accounts of landlords fleeing the sector in an ‘exodus’ that will see the end of the wider private rental sector (PRS) in the UK.

Proponents of this view note that rising interest rates, an increase in capital gains tax (CGT) and stricter regulation could push landlords out of the once thriving market. 

While the truth may be far less exciting – we believe that it is a lot more positive. 


Important to read between the lines

A recent Property and Homemover report published by TwentyCi indicates that compared with Q1 2019, new instructions in the residential rental market are down by 24 per cent and lets agreed are down by 11.5 per cent. While some have considered this to be evidence that beleaguered landlords are avoiding further investment in the sector, comparisons with pre-pandemic data points may be misleading. 

Decreased market activity is not necessarily a sign that significant numbers of landlords are leaving the sector. Rather, it likely reflects the impact on landlords’ business models of volatile inflation and interest rates, which will affect the timing of purchase and borrowing decisions. Buy to let is a long-term investment and landlords who take a long-term view understand the value of investing in property.  

Depending on their individual circumstances and financial plans, some smaller landlords, including those described as “accidental” (because they have decided to rent out rather than sell a property for a period) may have decided to leave the sector.   

In many cases, they may sell to other landlords, so the properties in question remain within the private rental sector. Changes to the taxation regime have made it more tax-efficient for buy-to-let portfolios to be owned and run on a corporate basis – with the result that many are in the hands of larger, portfolio landlords, who have the resources and capacity to absorb the additional costs created by the current environment. 


Why buy-to-let properties are still a good investment

One of the key factors driving the negative coverage of buy-to-let is rising interest rates, which could squeeze landlords’ margins and deter new investment. For landlords who have bought or are seeking to buy with a mortgage, the market remains highly competitive, and lenders, particularly specialist buy-to-let lenders, are working to keep rates as affordable as possible.  

In March, data from Moneyfacts revealed that buy-to-let product availability rose to its highest level since August 2022. As of that date, there were 2,400 mortgage products for landlords, the highest level since July last year. With the Bank of England’s recent decision to increase the base rate to 4.5 per cent, mortgage rates are likely to remain above the exceptional lows of recent years, but this is the case throughout the mortgage market and the sector has previously operated with rates at this level. 

On the flip side, high rents are actually attracting investors to the sector.

According to HomeLet, UK average rents hit an all-time-high of £1,199 pcm in April, reflecting high demand from renters and highlighting the potential for good returns for private landlords.  

The private rented sector (PRS) is an essential part of the UK housing market – formed of 4.4 million homes as of August 2022 – and will remain essential for decades to come.

It is therefore important that the sector continues to challenge misleading and exaggerated claims that it is somehow running out of steam. It is also important that the government and regulators proceed with extreme caution when contemplating policy changes that could have a detrimental impact on landlords’ business models: the PRS is now larger than the public rented sector – which relies to a significant extent on private landlords to house those for whom local authorities are responsible. 

Politicians should beware upsetting the balance without being fully aware of the consequences.   

The whole of the UK housing market is facing challenges at the moment, but it has proved itself to be extraordinarily resilient and, with the continued collective efforts of lenders and brokers, we are optimistic that it will continue to surmount those challenges and continue to serve owners and renters well. 

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