The Times has run an article by Melissa York which claims ‘2024 could be the year buy-to-lets are back. ‘
The article can be read in full here (subscription may be necessary) and provides insights into the dynamics of the UK buy-to-let market, highlighting key trends and factors influencing landlords’ decisions.
Here are the key points from the provided information:
- Background:
- Since the introduction of tax relief restrictions on buy-to-lets in 2015, landlords have been selling properties more than investing.
- A harsh tax and regulatory regime, combined with soaring house prices and rising buy-to-let mortgage rates, led to a decline in yields.
- Current Trends (2023):
- Approximately 139,000 rental properties were sold by private landlords in 2023, reflecting a challenging year for the buy-to-let market.
- For those who reinvested, the average gross yield for new buy-to-let purchases in England and Wales reached a record 6.9% in 2023.
- Factors Driving the Market:
- Rents outpaced house prices, with a demand/supply imbalance leading to a 6.1% increase in private rents in the 12 months to October 2023.
- The shift from investing in expensive properties in London to cheaper investments elsewhere contributed to increased yields.
- Regional Variances:
- Analysis indicates that the 15 locations with the strongest rental returns are in Wales and the north of England.
- Ceredigion on the west coast of Wales has the highest average yield at 10.8%, followed by Gateshead in Tyne and Wear with a yield of 9.9%.
- Rise of 40-Year Mortgages:
- Predictions suggest the rise of 40-year mortgages in exchange for lower deposits, potentially revolutionizing homeownership accessibility.
- Outlook for 2024:
- Anticipation of a more positive outlook in 2024, with falling mortgage rates, rising yields, and falling house prices enticing more landlords back to the rental market.
- Chestertons predicts a 6.5% increase in rents in 2024.
- Challenges and Financial Pressures:
- Mortgaged private landlords, particularly those with interest-only mortgages, are exposed to interest rate increases.
- Some landlords may struggle to cover costs, with a survey indicating that 73% of private landlords increased rental prices over the past 12 months.
- Regulatory Landscape:
- The Rental Reform Bill is progressing through parliament, with potential implications for the sector.
- Scrapping section 21 “no fault” evictions is a notable aspect of the bill, postponed until stronger possession protections and a new court process are in place.
- Optimism and Confidence:
- Despite challenges, three-quarters of landlords surveyed express confidence in the property market for the next year.
- Confidence levels are higher for landlords with HMOs, student lets, and those owning more than five properties.
- Supply and Demand Dynamics:
- Landlords remain optimistic due to a strong demand for rental properties, rising rents, and a slow rate of new home construction.
The overall picture suggests a nuanced landscape for buy-to-let landlords, with regional variations, regulatory considerations, and market dynamics influencing investment decisions.
