Landlords and the buy-to-let market in general have had a tough time of it over the last few years, with numerous rules and regulations being implemented, alongside wider, difficult market conditions.
In recent years the government has introduced new standards for landlords - such as the need to have an accurate record of the condition of their housing stock, and requiring landlords to give tenants opportunities to influence and scrutinise their landlord’s strategies, policies and services.
The government has also made progress over the last decade on increasing protection for tenants, including giving councils stronger powers to drive criminal landlords out of the market by introducing Banning Orders through the Housing and Planning Act 2016; and shielding tenants from excessive deposits and fees through the Tenant Fees Act 2019.
So, how is 2024 shaping up for landlords and the wider buy-to-let market?
How is the buy-to-let market shaping up for 2024?
Chris Daly, managing director of specialist mortgages at Hampshire Trust Bank, said "landlords need all the support they can get and more lenders must step up. It did not come as any surprise to me to read reports that some landlords have made a loss this year, as this has been clear from our regular conversations with brokers and buy-to-let landlords,” he said.
As a consequence, Daly said "a few landlords have decided to exit the market, however the majority look committed to the sector. They are taking a long-term view of their investment and have committed both time and money to stay in the market,” he said.
Looking towards next year, despite the testing conditions, Daly is expecting the specialist lending market to thrive.
“This stands in stark contrast to the latest forecasts from UK Finance, which suggest the buy-to-let sector will contract again in 2024, but our optimism is based on deep relationships within the sector and boots on the ground insight. The rental market remains robust, and while there are landlords who have exited the market, there is no indication that the number of rental properties across the country has reduced. Instead, less leveraged property investors have been taking advantage of opportunities, such as lower house prices, and this is likely to continue over the next 12 months. Indeed with stability slowing seeping back through the economy and property market, Daly said he is confident the buy-to-let market will thrive in 2024."
What about the impact of rates?
“Regarding rates, while there is a widespread expectation that rates will fall next year, I do not foresee them returning to anything like the historical low levels we were used to three years ago. Instead of waiting for the government to improve the plight of landlords, the industry itself should be looking at ways it can help them tackle affordability issues, as well as assisting property professionals to invest in higher-yielding properties. For example, lenders could consider moving into the Purpose-Built Student Accommodation (PBSA) investment market, as well as improving lending criteria for semi-commercial properties or removing holiday-let unit limits,” he said.
On the regulatory front, Daly added that it looks as though the Renters Reform Bill will come into law at some point during the second half of 2024.
“The bill is still working its way through the House of Commons and has yet to be passed to the Lords, so we do not know what the final law will look like, but investors will need to stay abreast of the bill and its ramifications,” Daly said.
Last but by no means least, there is a General Election on the horizon, and Daly said whoever wins should be urged to provide some long-term future guidance on the regulatory environment for the rented sector and their plans for planning, and housebuilding.
“Certainty is key to any sustained growth, whether in the buy-to-let market or the UK economy as a whole,” he added.
Landlords Are Optimistic About PRS Performance in 2024
Three-quarters (74%) of residential buy to let landlords say they are confident about the performance of the private rented sector (PRS) over the next 12 months, a survey reveals.
The findings from The Mortgage Lender (TML) also found that 27% of landlords felt very confident about the sector’s future. The survey reveals that landlords who predominantly owned homes of multiple occupancy (HMOs) were the most optimistic (86%) about the future of the PRS.
Student accommodation landlords and portfolio landlords with more than five properties also expressed high levels of confidence, at 84% and 82%, respectively.
‘The pivotal role that the BTL industry plays’
TML’s head of key accounts and specialist distribution, Chris Kirby, said “given the pivotal role that the BTL industry plays in supporting the residential market and ensuring the maintenance of the much-needed supply of homes, it’s encouraging to see these levels of confidence. Despite the fact that many landlords are facing higher operating costs, and additional to the inflationary pressures that are impacting everyone, the continued supply of good quality, well maintained rental properties is a must.”
Performance of their own rental properties
When it came to the performance of their own rental properties over the next 12 months, 71% of landlords felt confident, with portfolio landlords feeling the most confident at 78%.
The survey also found that landlords with more than five years of experience were more likely to feel confident about their portfolios over the next 12 months compared to those with less experience (73% vs 69%). TML puts this optimism down to those landlords having ‘weathered a number of economic cycles’.
Demand from tenants increased over the last six months
Tenant demand has remained buoyant, helping to keep these confidence levels up with 73% of landlords saying that demand from tenants increased over the last six months, with 27% saying it had been a significant increase.
This increased demand and the wider economic market is also impacting rent prices, with 73% of landlords reporting that they have increased their rents over the last 12 months, with the average going up by 34% amongst those surveyed and 52% said they had increased rents to keep up with the increase in their own rising costs, while a further 28% were following the lead of other properties in the area where asking rents had increased.
Abolition of section 21 is the biggest concern of landlords in 2024
A new survey reveals that landlords in England and Wales are worried about the upcoming changes in the rental market – and the abolition of Section 21 evictions is their biggest fear for 2024. That’s according to Zero Deposit after 1,042 landlords were questioned and most of them (89%) have between one and three properties in their buy to let portfolio.
The survey found that just 21% of landlords are optimistic about the rental market for the year ahead, while 24% were pessimistic and 55% remained neutral.
When asked about their plans to increase rents in the new year, 24% of landlords intend to increase rents, while 68% will maintain them at current levels, and 8% intend to reduce them.
‘Abolition of Section 21 evictions remain a concern’
The firm’s chief executive, Sam Reynolds, said “it’s clear that the Renters (Reform) Bill and the abolition of Section 21 evictions, in particular, remain a concern for many landlords. It’s seen as fundamental to protecting their property when significant issues arise and with so many factors now working against them, many landlords have reached their tipping point and have exited the market. This comes at a time where more stimulus is needed to encourage landlords to invest in the sector, such as a more lenient tax regime. Without this, and in the absence of any meaningful progress in the building of new homes, the supply of rental stock will remain insufficient and rental prices will continue to rise in 2024.”
Repairing and running their BTL portfolio
The cost of maintaining, repairing and running their BTL portfolio ranked top among the biggest challenges in the year ahead, followed by legislative changes.
Finding and retaining good quality tenants also ranked high along with higher interest rates for buy to let mortgages.
The abolition of Section 21 evictions ranked top as the biggest potential challenge for landlords in 2024. And limits to rent price increases and changes to notice periods ranked second, while greater rights for tenants when it comes to owning pets came third.
Mr Reynolds said “landlords electing to not increase rents, despite a vast number of reasons to do so, speaks to an understanding of their tenant’s financial constraints. In many cases, and in my experience, this underlines the impact of a positive relationship between landlords and tenants with just a small proportion planning to increase rents in the new year.”
Savills predicts high returns for UK property investors
The UK’s property market will offer attractive returns for investors in the next five years, with some asset classes and regions outperforming others, Savills reveals. The property consultancy has identified eight types of property that will deliver annualised returns above 8% between 2024 and 2028.
These include residential buy to let properties in the North West, industrial property in London and retail warehouses, which are expected to be the top performers with returns ranging from 8.5% to 9.2%. Savills says that despite the challenging conditions for landlords, such as higher taxes and regulations, there is still a significant opportunity for those who are less dependent on debt.
That is the case in the regions furthest from London with the North West, for example, projected to see 9.2% returns for residential BTL as the UK’s rents are forecast to grow by 18.1% by 2028.
‘Factors that drove falls in UK property values’
Savills’ joint head of UK investment, Richard Merryweather, said “the factors that drove falls in UK property values and transaction levels over the last two years are expected to improve in 2024. There will be significant opportunity – especially in the commercial and residential spaces – for investors to buy at the bottom of the market, with a focus on opportunities where capital values have either over-corrected, or where rental growth prospects might be accelerating. The UK is one of 40 countries expected to have an election in 2024 which often causes investor uncertainty. However, our analysis suggests that although transactional activity is generally lower than normal in the three months prior to the election date, it recovers over the following six months.”
Private rented sector (PRS) will face more competition
The firm also expects that the private rented sector (PRS) will face more competition from institutional landlords investing in Built to Rent (BTR) and purpose-built student accommodation (PBSA).
These sectors are expected to play an important role in meeting the growing demand for rented housing, especially among young and elderly people. Indeed, its residential investment pick is retirement homes for renting with the emergence of new players and models in the retirement housing sector.
They will be helped by a structural imbalance in demand and supply.
Property investment market will have a stronger outlook
Savills’ annual cross-sector forecasts suggest that the UK property investment market will have a stronger outlook and opportunity in 2024, as interest rates stabilise. However, the firm warns that returns will continue to be driven by income potential rather than capital growth, as the cost of debt will remain high for longer.
Savills also predicts that house prices will return to growth by 2025, as the cost of mortgage debt gradually declines over the next five years. This will increase the affordability and activity levels of home buyers, who have been subdued by the uncertainty and volatility of the market.