As you might have expected, there has been a flurry of data, statistics and survey findings into the buy-to-let and private rental sectors in recent weeks.
This is often helpful as we close out a year and move into the next one, not least because it gives us a strong sense of where we are as a lending sector, and also what areas we all might wish to consider during the next 12 months.
It also highlights where demand currently is, what landlords may wish to do with their portfolios, not forgetting those rather important factors such as the cost of funding, tenant demand, lender appetite, and much more.
Perhaps it makes sense to start with UK Finance’s buy-to-let lending figures and, again it is likely to surprise no-one, to hear gross purchasing lending is down by over half year-on-year at £8bn, while gross remortgage lending is down by almost the same, currently at £20bn. This compared to £17bn and £38bn respectively last year.
In terms of a ‘new normal’ UK Finance is predicting the next couple of years to look very similar to 2023, and again there will be no surprise in that, even if to my mind it seems somewhat pessimistic.
The Bank of England’s figures for the buy-to-let sector are not too dissimilar, however these cover just Q3 this year. According to these, the share of quarterly gross mortgage advances were down by 0.7% making them the lowest since Q3 2010; the value of new mortgage commitments were also down – 41.1% lower than a year previously.
However, there was more positive news with the value of gross mortgage advances up 18.6% on the previous quarter – the first quarterly increase since Q3 2022.
This does set the scene for what may be a more positive start to 2024 than we might have imagined in the middle of 2023, when rates had rocketed, products had been pulled, and rising loan costs were making it difficult for a number of existing landlords to meet the new monthly mortgage costs.
Recent months have seen a rather different picture emerge, and while we are nowhere near the rate levels of just a couple of years ago, product pricing has fallen, and there is an expectation that this will continue to happen.
That undoubtedly gives landlords greater confidence, not just in their ongoing ability to service existing loans, but also in terms of their focus on adding to portfolios. Research from the Deposit Protection Service of active landlords recently revealed almost three times the proportion of landlords with portfolios larger than 10 properties say they intend to buy, when compared with those who own just one or two.
While twice as many of those who own homes in their individual names say they intend to sell all of their properties and leave the PRS, when compared to those who use limited company vehicles.
It makes for an interesting marketplace, and even though those with smaller numbers of properties are more likely to sell, I can’t help but wonder if the attractiveness of property as an investment will grow as the months’ progress.
There are a number of reasons for this not least: house prices having stabilised and plateaued; interest rates coming down which makes mortgages more affordable and other investment options such as savings rates less so; very strong tenant demand coupled with supply issues that have seen rents rise and yields grow.
All add up to a different perspective on investing in property than we’ve had over the last year or so. As I write, swap rates have come down even further, and as we get closer to rates of 5% or even below for buy-to-let mortgages, then I think we’ll start to see an even stronger drive to add to portfolios, and to benefit from the opportunities stated above.
Not least, if those with very small numbers of properties are looking to sell up, then it will be portfolio landlords most equipped to be able to take these off their hands, and keep them within the PRS, where supply is still greatly needed.
Overall, whereas last year many stakeholders may have been too optimistic about what the year could bring and were not anticipating the big Spring-time shifts in inflation and rates, this year I feel the industry might be a little too ‘glass half empty’ about the year ahead.
My feeling is that, by this time next year, we’ll be talking about a sector which has outperformed those predictions and one that is likely to have shown relatively strong growth, compared to what was anticipated for it. Advisers should make sure they keep their landlords in the loop, because my belief is they’ll be seeking to make the most of market conditions in 2024, in a way they simply didn’t, or couldn’t, in 2023.
Steve Cox is chief commercial officer at Fleet Mortgages