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The future of BTL is professionalisation – Ferguson

The future of BTL is professionalisation – Ferguson

Andrew Ferguson, managing director of West One Loans
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Posted:
November 7, 2024
Updated:
November 7, 2024

It nearly passed me by entirely, but it occurred to me the other day that I had been at West One for five years.

It’s been a rollercoaster of a market throughout this period, arguably affecting landlords more than most areas of the property market. The milestone prompted me to reflect on how the buy-to-let (BTL) market has evolved in that time – and where it’s going.

 

Interest rates weigh on lending

There’s no two ways about it; the BTL market is now a very different place to the way it was when I first stepped through the doors of West One’s HQ in 2019.

Back then, interest rates were under 1% and the market was motoring, having grown by more than 62% in 2014-19, according to UK Finance.

While the ruling Conservative administration of the time had already hit landlords with a stamp duty surcharge and started to remove mortgage interest rate relief, the market powered on, reaching a peak of £57.2bn in 2022.

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Of course, the market today is very different in 2024, with the Intermediary Mortgage Lenders Association (IMLA) predicting £29bn of lending this year.

 

Landlords remain profitable

But despite the media’s obsession with calling the death of the BTL market, its current ills are down almost entirely to the rapid rise in borrowing costs. Hamptons, the estate agent, ran the numbers last year and found that most landlords would turn a profit with mortgage rates of around 5%.

Well, the average five-year fixed rate at 60% LTV is currently 4.45%, according to Moneyfacts. And that number will start to fall as the Bank of England continues to reduce borrowing costs.

When borrowing costs do fall, landlords’ bottom lines will be looking significantly healthier than they are now. Then perhaps some of the negativity surrounding the sector will dissipate.

Remember, it’s not just the BTL market that is struggling – the residential market is, too.

 

Changing shape of the market

I may be biased, but I genuinely believe the BTL sector has a future – and a bright one. But I also believe the shape of the market will look very different to the one we have known in the past.

Rachel Reeves’ recent Budget was significant, of course. It ushered in increased regulation, higher stamp duty and the prospect of higher borrowing costs. Those factors may well act as a catalyst for change and see smaller landlords squeezed.

While the two percentage point increase in stamp duty is unlikely to have a huge impact on the new breed of business-centric landlord, it will undoubtedly impact the smaller ones.

Either way, it is more important than ever that landlords of all sizes operate professionally and know what they are doing, from buying the right asset to structuring their portfolio in the right way with advice from professionals. It is no longer an automatic licence to print money.

Sadly, we have seen some smaller landlords exit the market already. However, they are being replaced. Last year, a record 50,000 BTL limited companies were set up, according to separate research by Hamptons.

This tells me this is a market that is adaptable, rather than one that is in terminal decline.

UK property is too valuable an asset class – and too scarce a commodity – for it to ever go out of fashion with investors. It’s never happened before and I can’t foresee a scenario where it happens in the future.

It may look different to the market we know today, but I have no doubt the BTL sector will be thriving once more in five years’ time, when I hope to be celebrating 10 years at West One.