2024: A Year of Improvement in the Buy-To-Let Market

2023 was a difficult year for the private rented sector and property investors. Inflated mortgage interest rates and property prices which were still relatively high made it difficult to get the numbers to add up.

As we hit the half-way point in 2024 how are things working out for property investors? Are we finally seeing an improvement in the buy-to-let property market?

The indicators thus far suggest that things are getting a bit easier with the relationship between the cost of finance and house prices once again beginning to improve. With a consequent rise in BTL activity, we find ourselves once again in our happy place!

As buy-to-let property professionals we’re going to take a look at what’s happening and what inferences, if any, we can draw from activity thus far in 2024. The weather might be unseasonably cool, but the market might, finally, be warming up.

Why was 2023 so difficult?

One of the reasons for the challenges 2023 presented can be found in the seemingly inexorable rise in interest rates:

Granted, rates had been at an historic low for a long time and they are still nowhere as high as they were in the late ‘70s or early ‘90s. But that is to indulge in a fair bit of ‘whataboutery’.

Looking at the Bank Of England’s graph, we can see that until 2022, the base rate hadn’t exceeded 1% for many years previously. The market had become used to this version of normal.

It started to rise in 2022 as the Bank sought to combat rising inflation and this was turbocharged later in ‘22 as a result of the Truss government’s ill-advised budget. The resulting rise didn’t start to plateau until well into 2023.

According to Statista, the highest buy-to-let fixed mortgage rate in Q1 – Q2 2022 was 3.84%.At present, rates between 6.8% and 8.99% are not unusual. That’s a substantial increase.

Since many property investors rely to a greater or lesser extent on finance, this sudden and substantial increase in cost was cause to stop and consider whether or not the investment made financial sense.

However, interest rates weren’t the only issue affecting the market.

House prices

Rising house prices are generally regarded as ‘A Good Thing’ although this is based on a particular set of factors.

It assumes that those who stand to benefit already own property – buyers aren’t fans of rapidly rising prices. Sellers may well appreciate the extra value in their homes, but rising prices mean they need to meet that increase if they’re buying again.

For landlords, rising house prices are a double-edged sword. Their capital wealth increases as the market value of their portfolio rises, however adding to that same portfolio, or getting started in the market becomes more expensive.

As property becomes more expensive, the margin between investment and return will shrink – when interest rates are rising at the same time that margin can shrink rapidly.

It is therefore to the benefit of the property investor that house prices across the UK have been increasing but at a reduced rate over the past year.

Government figures for England and Wales show an almost across-the-board reduction between January 2023 and January 2024, varying between -0.6% and -3.9%.

Since then prices have shown a very modest change with an average increase in the region of +1% by March 2024; the latest figures available.

Scotland does seem to be bucking this trend with an increase of 5.4% between Feb. 2023 and Feb 2024. The figures to March 2024 suggest price growth is on average now 6.7%.

It’s important to remember that these are headline figures and continuing growth in, say, Edinburgh, will mask static, or even falling, property prices elsewhere in the country.

Location is still a key consideration when looking to invest in a buy-to-let property and to get the best property for your money.

Rent

Rents have continued to rise over the past year, with England and Wales seeing an average increase of 8.8% in England and 9.0% in Wales. Determining rent increases in Scotland is difficult due to the recent rent increase cap which ended in March ‘24.

In short, rental income is currently not an overriding factor when calculating whether or not to invest in buy-to-let properties.

Advice from the property pros

We all know 2023 was a difficult year in the property investment market, especially in Scotland where a cap was in place restricting rent increases on existing tenancies.

In addition there was quite a lot of concern about the proposed changes contained within the Renters (reform) Bill. With the financial squeeze from rising house prices and relatively high mortgage rates, the outlook was less than rosy.

As 2024 has unfolded however, we have seen an improvement in the buy-to-let market. The market has started to settle and retrench. Interest rates have remained stable, albeit at a higher rate than just a few years ago.

Inflation has finally fallen to the 2% target and may well stabilise there, and there is a chance we will finally see base-rate cuts later in the year

House price increases have slowed and in some regions reversed. While we accept that this isn’t good news for everyone, it’s probably time that the market calmed down after a period of post-pandemic growth.

Finally rental income has remained pretty solid, driven by the persisting shortage of housing stock.

These changes have between them created an environment where buy-to-let investment is once again a worthwhile consideration and we are seeing a general improvement in the market in 2024.

There are still unknowns with a new government and the Housing (Scotland) BIll is before the Scottish Parliament. Both of these events might affect the nature of the rental market to some extent.

We don’t yet know how great those changes might be however Labour have made no secret of their priorities.

In summary…

We’re not quite standing on the rooftops shouting about the rude good health of the buy-to-let market, but there is no doubt that things have been improving this year.

After a hard time in 2023, it’s good to see the PRS settling down and becoming an attractive investment opportunity once again.

Having weathered those ups and downs ourselves, we are well placed to offer guidance and advice if you are considering dipping a toe in the buy-to-let investment market.

Drop us an email, pick up the phone and set up a meeting so that we can explain how the improvement in the buy-to-let market might make it an excellent investment for you.

Written by Chris Wood, MD & Founder of Portolio

Get in touch on 07812 164 842 or email [email protected]