Many a recent headline has suggested the demise of the private rented sector (PRS), with rumbles of BTL investors potentially exiting the market en masse as higher interest rates take their toll on a sector already squeezed to the limit by a punishing tax regime and costly regulation.
This fear of the BTL market shrinking is justified. Intermediary Mortgage Lenders Association (IMLA) carried out new research in November last year that examined the financial position of BTL landlords for the first time.
The Landlord Survey revealed a market predominantly supplied by small businesspeople making modest profits out of their rented properties – and those with mortgages facing the prospect of struggling to break even in the next two years, with their cost of borrowing soaring by an anticipated 80 per cent as they refinance off historically low fixed rates.
However, our research also found that, somewhat counterintuitively, 35 per cent of all landlords and 50 per cent of portfolio investors plan to expand their portfolios over the next five years, while only 18 per cent of the total and 17 per cent of portfolio landlords intend to downsize over that period.
Other studies confirm this fortitude in the face of adversity.
For example, data published by BTL specialist The Mortgage Lender (TML) in January showed a majority of landlords grew their property portfolios in 2023, with more set to do so over the coming 12 months. In total, 52 per cent of BTL residential owners added to their portfolios in 2023, with 25 per cent buying a single property and 27 per cent purchasing multiple homes.
According to the TML survey, over the coming year, 26 per cent of landlords plan to add another single property, while another 26 per cent plan to invest in multiple properties.
Such resilience may be driven by numerous factors, including the desire to meet the continued rising demand from tenants, the plan to hold on to property to pass down to children and grandchildren, or simply great confidence in the long-term reliability of property as an asset class.
An earlier TML survey (Q4 2023) found that 74 per cent of residential BTL landlords felt confident about the performance of the property market over the coming 12 months. The most optimistic were those landlords who predominantly owned homes of multiple occupancy (HMOs), at 86 per cent, student accommodation landlords (84 per cent) and portfolio landlords with more than five properties (82 per cent).
Encouragement for smaller landlords
Such evidence contradicting predictions of an exodus is very welcome.
The PRS provides homes for around 20 per cent of the UK’s households, and demand continues to increase more quickly than supply. A mass exit of landlords could create a serious issue for tenants, deepening the supply/demand imbalance and further increasing rising rents.
And we are not out of the woods yet. Our research, and that of TML, suggests that the most bullish landlords are the larger players. Smaller providers are more likely to be walking the tightrope between profit and loss, and those smaller players make up 61 per cent of the market.
Any further financial blow to this majority cohort, in the form of further regulation, added taxes or further hikes in interest rates (a possibility that cannot be entirely dismissed, given the current global economic insecurity), could tip more precariously positioned BTL borrowers over the financial parapet and out of a market that desperately needs them.
In the future, politicians and regulators might be wise to adopt a more nurturing stance towards the beleaguered BTL sector and encourage landlords’ perseverance, rather than seeking to impose more pressure on this vital part of our housing landscape.