Why we’re optimistic about the buy-to-let sector in 2024

After what was undoubtedly a challenging year for all buy-to-let market stakeholders, it’s fair to say 2024 began in a much more positive manner, with the sector buoyed by lower swap rates, an optimism about where product rates might go throughout the rest of the year, and a greater degree of demand from landlord borrowers as a result.

Of course, the big question is whether the year can continue in the same vein, but given the early months of any year tend not to be the high points, we are certainly positive about what 2024 can bring, albeit with a business mix which is still leaning towards remortgaging, but with increased purchase activity.

Our recent Rental Barometer Index shows some of that positivity, especially in the core area of rental yield. Landlords are clearly relying on strong yield in order to meet the challenges of higher mortgage costs, increased upkeep expenses for properties, greater responsibilities in terms of improving energy-efficiency, not forgetting the costs involved in running limited companies, which many now house their portfolios in.

On that very point, we continue to see the dominance of limited company landlords in terms of the business we receive. Over two-thirds of borrowers are now limited company, and just one-third private investor, which should give advisers an idea of where the market has moved since the Government made its decision on cutting mortgage interest tax relief.

However, back to yield, and across England and Wales, we continue to see rising yield figures, up from 6.7% in the last quarter of 2023, to 7.1% in the first quarter of 2024.

Perhaps, unsurprisingly, it is regions in the North of England which continue to have the highest yield figures with Yorkshire & Humberside (8.5%), the North East (8.4%) and the North West (7.9%) leading the way.

Indeed, there is something of a North/South divide across the country in terms of yield, with those regions in the South showing the lower yield figures – Greater London (5.9%), South East (6.1%) and South West (6.2%) – but this is what you would anticipate given the higher property values in those areas.

Overall, however, this is still a positive for landlords, as even these Southern regions are tending to show an increased rental yield figure on what was being achieved just 12 months ago.

This clearly keeps landlords invested, as they are able to meet these higher mortgage costs, plus with rates having come down off those highs of 2023, it hopefully gives them a bit more room to play with in terms of securing the level of loan they require, and ensures they meet the affordability criteria.

In a few other areas, we have further cause for optimism. Average rates for both two- and five-year fixed-rate products have dropped considerably since the last quarter of 2023, for the entire buy-to-let lender cohort and for Fleet specifically.

Our average rental cover at origination has gone up from 170% to 172% showing landlord borrowers are, as mentioned below, increasingly insulated in terms of securing the rent required to meet those higher mortgage costs. While our average loan size has also increased over the period, up from £175k last quarter to £183k in this one.

For advisers, it should be obvious to see this is a much more focused sector, and one which is increasingly dominated by the specialist professional landlord, who has a significant portfolio of properties. That is important in terms of the advice you provide, and it should be clear to all that a strong working knowledge of the specialist, more complex, buy-to-let market is needed, particularly as landlords seek to expand more into areas such as HMOs, multi-unit blocks, shorter-term and holiday lets, or all of the above.

Our typical landlord portfolio has remained constant at, on average, 11 properties, evidencing they remain committed to the market longer-term, and if the opportunity arises, they are also looking to add to this number, utilitising their portfolios in order to do this.

As mentioned, we are hopeful of a more buoyant purchasing market in 2024, particularly given demand for PRS property shows no sign of abating and, if landlords can get the numbers right, there is not just short-term income to be secured but also long-term capital increases.

Overall, therefore, there appears to be plenty of reasons to be optimistic about the buy-to-let sector in 2024, which after a very challenging 2023, is perhaps not something we expected to be saying when last year was unfolding.

Advisers should ensure they have the working knowledge of the sector to be able to cater for landlord borrowers with increasingly complex financial needs. That is the way the market is moving – more professional, more specialist, with bigger portfolios and a focus on keeping mortgage costs down and increasingly having properties which deliver greater yields. If you can keep on top of this, there should be a strong market to access and many borrowers to support.

Download a copy of the Fleet Mortgages Q1 2024 Rental Barometer:

Fleet Mortgages Rental Barometer Q1 2024

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