The Buy-To-Let Mortgage Market: 2024 Update

The buy-to-let mortgage market in the UK has been on a bit of a rollercoaster ride over the past few years, starting with the uncosted mini-budget delivered by Liz Truss’ government in September 2022.

Since cost-effective finance is crucial to investors and landlords, this had an immediate and painful impact on the buy-to-let sector and the Private Rented Sector (PRS) as mortgage rates rocketed.

Some landlords sold up and left the sector as the cost of their mortgage repayments spiralled. Others, who had been poised to make further investments, stayed their hand, waiting to see what would come next.

In other blogs, we’ve already hinted at the fact that the market has improved since last year, so in this piece we thought we’d get the opinions of the people who go out of their way to make affordable finance happen – the mortgage brokers.

We’re proud of our record and experience, but we’re also smart enough to know when someone else’s experience is needed! Without further ado, let’s see how the buy-to-let mortgage market is bearing up today.

A bit of recent history

Following the sudden rise of interest rates in late 2022, lenders reacted by withdrawing thousands of products and jacking up interest rates far beyond what the market had become used to.

Lynsey McMenemy, founder of Hansar Mortgages, remembers refusing to provide mortgages for potential buyers at the time because the market was so volatile and no one knew what was going to happen.

She went on to say:

“Fortunately for the sector, the changes introduced in 2022 were rapidly rolled back and although it took time for rates to settle, despite the highest Bank of England base rate for years, they did start to settle.“

During this period, the sector saw a substantial number of landlords leave the market as higher mortgage rates ate into whatever profit they had enjoyed. This exodus was to have an effect down the line.

However, although the crippling uncertainty surrounding lending began to ease, the post-pandemic house price surge made purchasing good-value investment property challenging.

Lynsey continued;

“With properties selling well over Home Report valuation in some areas and the cost of borrowing remaining relatively high, it became more difficult to identify and secure properties with the potential to deliver a workable return.“

The market at present

The combination of factors outlined above made for a difficult market, and this affected everyone in the private rented sector (PRS) with 2023 being particularly lean.

Fortunately things are changing and they are changing for the better. The recent reduction in the BoE base rate, while small, suggests a direction of travel and this has brought confidence back into the market.

All of this is positive for the BTL mortgage market.

Property prices

Additionally the property market is seeing an overall reduction in the percentage over Home Report that properties are selling for.

There are still areas in Scotland where local factors buck national trends, but even in Edinburgh and Glasgow, property prices are falling back, enabling landlords and investors to forecast more profitable purchases.

Mortgage products

Lynsey was keen to point out that the major lenders are now actively pursuing property investors and landlords, with some new products to the market offering sub-4% rates.

She was equally emphatic that she had no expectation of seeing ‘pandemic-level’ interest rates again, but does expect a slow and steady reduction in mortgage rates, encouraged by a decreasing BoE base rate.

“With the availability of more reasonably priced products and a steadying in property prices, the buy-to-let mortgage market is enjoying a definite uptick and in Lynsey’s estimation should be stable with a lower BoE rate within 18 months.“

Moreover, Lynsey noted that in her experience she was seeing more professional landlords looking to enter the market and a corresponding reduction in the proportion of ‘accidental’ landlords. Remember the exodus mentioned above?

Although she didn’t explicitly say so, the clear implication was that there are fewer investors looking for get-rich-quick opportunities and more investors looking for stable, rewarding long-term investments.

These investors are focussed on the long-term returns to be accrued from their capital investment, rather than their monthly income. Income is important still, but in her experience, knowledge and expectations are shifting.

She’s also seeing far more applicants operating as limited companies rather than borrowing in their personal names. While this will make the process more  complicated, borrowers clearly feel the benefits outweigh the extra work.

Lynsey’s views were broadly mirrored by Kessar Salimi of Freedom Financial Services;

“Mortgage lenders have high lending targets to meet so are keen to continue lending and we are seeing rates starting to drop.

Pricing is dependent on multiple factors, not just the base rate.  Many lenders’ borrowing is based on swap rates or saving deposits, we have seen drops on both recently which will be welcome news for BTL mortgages.“

Looking to the future of the BTL mortgage market, Kessar offered the following:

“The market is (still) volatile and any negative news about inflation, recession or war could easily reverse any recent rate drops, however I think rates will continue to drop and I’d expect to see one more rate cut from the Bank of England this year.“

These views of the market were mirrored by Cameron McLean of Mclean Financial Services.

Based in Aberdeen, Cameron is seeing a healthy market, and appetite, for property investment.

“With the recent Bank of England base rate decrease we’ve certainly seen a growing appetite to buy.  Clients who had held off before are now feeling more confident about buying and when lenders cut rates, there’s even more incentive.

The Mortgage Works published their rental income analysis today showing that in Q2 of 2024, the average UK rental yield is 6.3%, making this a 10 year high.

When we look at the mortgage rates now, compared to last year, we do see more attractive offerings.  For those with property portfolios, this can be viewed as a good time to invest as property prices start to increase again.”

Like our other contributors, Cameron expects to see lending rates continuing downwards over the short to medium term, with an increasing number of attractive products available to landlords and property investors.

Why borrow?

Speaking about the market more broadly, we discussed why the demand for finance was still healthy, and for those of you who might be new to the PRS, Lynsey’s insights were enlightening.

There are simply not a large coterie of cash buyers out there, so borrowing is necessary. Moreover being able to finance purchases can give the investor the opportunity to increase the number of properties they own.

This spreads their risks, while potentially increasing their returns, with several income streams allowing them better weather the costs of voids and repairs, whilst building towards a better long-term capital return.

Additionally, if they enjoy stable income from their properties it enables them to accrue savings which can then be used to add to their property portfolio.

Advice from the Property pros

When it comes to borrowing to finance property investment our first and last piece of advice is ‘speak to a specialist’!

Since the difficult days of 2022 the number and quality of offerings from lenders has grown and expanded and it can be far from simple to find the one that best suits your circumstances. That’s where our contributors come in, scouring the market for you.

We have noted the general improvement in the buy-to-let market since last year and it’s not surprising but still reassuring to hear that this increasing confidence is mirrored in the BTL mortgage market.

It’s also good news for landlords and investors to see that major lenders are actively seeking out their business, competition often leads to more attractive rates and terms, so this is all to the good.

In summary…

The UK economy has a long way to go until we, and you, feel that a corner has been turned, however improvements in the BTL market generally are cause for renewed confidence.

Seeing base rates reduce and investor-specific products becoming more attractive is just another step on the road to full recovery.

Our deepest thanks to our contributors, Lynsey, Kessar and Cameron, for sharing their insight and experiences with us, and through us, with you.

Written by Chris Wood, MD & Founder of Portolio

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