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Buy-to-let is a mature, seasoned product that is here to stay


Paragon Bank Managing Director of Mortgages Richard Rowntree highlights that the buy-to-let sector is heading toward its thirtieth year and has nearly £300 billion in outstanding balances in his latest column for Mortgage Strategy.

I read with interest a comment piece from a London-based broker in the Telegraph last month calling the death of the buy-to-let market.

Not to be glib or complacent, but I have heard the prediction of buy-to-let’s demise ever since joining the mortgage industry over 20 years ago.

And during that time it has withstood the dotcom bubble bursting, the global financial crisis, the Government austerity agenda, the Brexit referendum and prolonged implementation, the Iraq war, the introduction of the Stamp Duty surcharge, changes to mortgage tax relief, tighter regulatory rules and the Covid pandemic, to name but a few.

So many myths and misconceptions are associated with buy-to-let, something that has dogged it since its early days. I’m amazed that it is still viewed by many as a flash in the pan, a risky mortgage product utilised by chancer investors.

Nothing could be further from the truth. Buy-to-let is close to marking its thirtieth year and is on the cusp of becoming a product with £300 billion of outstanding mortgage balances.

It is a mature, seasoned financial product that has proven its resilience through numerous economic cycles and has delivered a better arrears performance than the owner-occupied market for most of the last 20 years.

The majority of landlords, particularly those with a mortgage, manage their portfolio well, improve their properties and provide a good home to their tenants. They invest with a long-term view and have sensible and realistic expectations of returns.

Lending at record levels

UK Finance data recently showed that buy-to-let lending hit a record level in 2022, fuelled by a surge in remortgaging, but also strong purchase activity. Total lending hit £55.7 billion during the year, with remortgaging accounting for £37 billion, up from £27.8 billion in 2022. New purchases totalled £17 billion, down slightly from £17.8 billion in 2021.

The notion that the market is dead is centred on three areas – there is a haemorrhaging of landlords selling up, nobody is buying and the numbers no longer add up.

Taking the middle point first, clearly the UK Finance 2022 numbers don’t capture the fallout from the disastrous mini-budget, which impacted all areas of the mortgage market. Purchase business volumes in 2023 will be lower than 2022 numbers, just as 2022 was lower than the previous year.

However, landlords are still buying in number, although I believe we may see a further acceleration of a longer-term trend – the growth of the portfolio landlord over smaller-scale operators.

For portfolio landlords, this is their job, their livelihood, and we are seeing this group taking an opportunity to acquire new property in a softer house price environment.

At the non-portfolio end, or those who wish to enter the market for the first time, the current environment may not be conducive to investment and we could see this cohort sit on their hands until a clearer economic picture emerges.

With regards to landlords selling, I don’t see any mass exodus. Hometrack data shows that the proportion of property previously listed for rent has fallen from the highs of last summer.

Product availability improves

Product rates have been coming down and product availability going up since the mini-budget. We are seeing those landlords remortgaging favouring longer-term five-year fixed-rate products again after the growth in popularity of variable deals and they are adapting well to a higher interest rate environment.

As for the investment no longer making financial sense, landlords are making it work for them. That could mean putting more of their own equity into the proposition, but they are finding solutions that work for them.  

Additionally, most landlords who have remortgaged haven’t experienced the 150%-200% increases in interest payments you have seen reported in the media. The reality is far more muted, although, like those in the owner-occupied space, they are of course having to contend with some increase in mortgage costs. 

There is no doubt the past six months have presented challenges for landlords. But challenges have been a fact of life for buy-to-let and landlords over the past 25 years, during which time the sector has adapted, evolved and grown.

You can read this column in the latest issue of Mortgage Strategy.