The buy-to-let market has started 2024 at a fair old lick with plenty of product and rate changes – including from Fleet – and the feeling 2024 could deliver much more in terms of activity and transactions than we saw last year.
In that sense, the numbers tend not to lie. UK Finance figures revealed a significant annual fall in gross lending for the sector for both purchase and remortgage in 2023, and as a result, is predicting similar levels over the course of the next 24 months.
Again, that is not surprising, however there are a number of fundamentals that might point in the direction of more activity, particularly in terms of purchasing which has clearly been dampened by much higher rates/higher affordability criteria recently.
Those fundamentals however continue to exist, not least in terms of the rental yield return possible, tenancy demand versus supply of private rental sector (PRS) properties, house prices having fallen, and as mentioned, a much more benign rate environment.
Our most recent Rental Barometer statistics covering Q4 2023 reveal those potential purchase drivers, not least in terms of rental yield.
These figures cover all the regions of England and Wales in which Fleet lends and for the last quarter of last year, the lowest yield figure was a still healthy 5.5% in Greater London, moving up to 8.9% in Wales.
Overall, the total figure across all regions was 6.9% which highlights what is achievable for landlords, and perhaps shows why portfolios and professional landlords in particular are still very keen to keep on buying property where possible.
What has clearly held them back is the more expensive cost of finance over the course of the last 12 months as rates rose, and it became much more difficult to make the maths work.
Now, however, with swap rates continuing to track down and with greater confidence in BBR being cut this year, we are much closer to a price point which increasingly works for landlords seeking to buy.
The average rate of a Fleet buy-to-let product went from 5.74% in Q3 last year to 5.49%, and I can almost guarantee that when we come to write the next iteration of the Barometer, that figure will have dropped much closer to the ‘magic’ 5% mark.
I say this because, history (and our activity levels) tell us that when rates are much closer to 5% and below, then affordability becomes easier to achieve, which in turn allows landlords to make the numbers work in order to make those purchases.
I should point out that we are not expecting to see a massive lift in terms of landlord purchasing through 2024, but our view is that the conditions necessary for purchasing have improved a lot.
Indeed, a comparison of our activity over the last two quarters of 2023 show that the percentage of purchase business Fleet wrote went from 30% to 32%. Again, it is not a huge shift – remortgage/PT business still accounts for more than two-thirds of our lending – but I tend to think that this will continue to move upwards, if the conditions continue to move in the right direction.
For advisers it could mean a much more promising outlook for buy-to-let business this year, and with rates having fallen, the opportunity to look beyond product transfers for maturing mortgages, which will certainly help from a procuration fee point of view.
A competitive rate picture is vital as we know, and we are not just committed to lending in the sector but also ensuring our price point is as compelling as we need to be, in order to secure the business we believe is out there.
We should also not forget we are just weeks away from a Budget announcement. Rumours of changes to stamp duty are once again rife, and if landlord purchasers can also benefit from this, then given the extra charge they have to pay, it will provide them with further motivation to potentially make their move now. Particularly if it is a stamp duty incentive for a limited time.
Overall, while I can understand the reticence around those predictions for buy-to-let lending activity in 2024, I’m also of the opinion we have the potential to exceed the achievements of last year, and to help landlords add to their portfolios while also ensuring they can hold onto their existing properties.
There’s no doubting that the PRS needs all the supply it can get because it looks highly unlikely that tenant demand is going to fall back anytime soon.
Steve Cox is chief commercial officer at Fleet Mortgages