There can be little doubt that 2023 has been a year of transition for the UK property market, with noticeable and significant challenges confronting investors and intermediaries alike.
Most significantly, the Bank of England’s aggressive, inflation-battling rate hiking cycle elevated the base rate by 1.75 percentage points in the first eight months of the year, culminating in a 15-year high of 5.25 per cent.
As such, balancing rapidly rising mortgage repayments with rental income has been one of the prominent difficulties for landlords in the past 20 months or so.
This is corroborated by a recent Butterfield Mortgages’ survey of BTL landlords, which found nearly half (49 per cent) saw rising interest rates as a key challenge when managing their property investments this year.
Despite these hurdles however, there are indications that suggest a positive swing in the market.
At its past two meetings, with inflation falling below 5 per cent, the BoE voted to maintain the base rate at its current level, which has allowed the lending landscape to stabilise. Accordingly, BTL landlords appeared to gain a sense of optimism moving into 2024.
So, how have landlords navigated this turbulent BTL market?
No exodus
With mortgage costs rising, much of the media in the past few months has been consumed by predictions of a large departure of landlords, but these predictions appear to be somewhat overstated.
Indeed, Butterfield's survey portrays a remarkably resilient BTL sector, with 87 per cent of landlords either maintaining (53 per cent) or expanding (34 per cent) their property portfolios in the previous 12 months – the opposite of the mass exodus that many commentators have been heralding.
Research from The Mortgage Lender too has found almost three-quarters (74 per cent) of buy-to-let landlords feel confident about the performance of the property market over the next 12 months.
Furthermore, even though their mortgage repayments have risen significantly, more than half (51 per cent) of landlords decided not to increase the rent they charge in the past 12 months.
Largely this is because, as 62 per cent of landlords told us, they were uncomfortable hiking rent during the cost of living crisis, but the data also demonstrates that the resilience of bricks and mortar means many property investors can withstand and absorb unexpected economic uncertainties.
Nonetheless, some adaptations had to be made, with 37 per cent of landlords responding to the new high-interest rate environment by increasing rent.
Additionally, the survey found 45 per cent of landlords are enhancing their properties’ energy efficiency by investing in additions that have, in the past two years, increased their energy performance certificate rating.
This commitment to improving energy efficiency signifies a long-term dedication to the BTL market, even if the proposed EPC regulations were scrapped earlier this year.
Optimism prevails
Looking ahead to 2024, many landlords deem the choppy economic waters affecting property investments to be calming.
According to Butterfield’s research, for example, 47 per cent believe the BoE’s base rate will fall in 2024. This view is shared by many economists, who expect the base rate to start to fall by as early as June 2024.
