Buy-to-let property investment in the UK has been a historic favourite of individual and institutional investors thanks to a long trend of rental and house price growth and the ease with which would-be landlords could take out mortgages against the value of their properties. In recent years, however, a combination of regulatory and financial pressures has placed a strain on the UK housing market and, by extension, the private rented sector.
Following 2023’s highly publicised mortgage crisis and the general election earlier this year, the viability of buy-to-let property investment is in doubt. As we pass the halfway point of 2024, understanding the micro- and macro-level challenges facing the buy-to-let market will be essential for property investors who want to secure their portfolios in 2025.
At Concept Capital Group, we specialise in alternative real asset investment opportunities that include non-traditional residential property. Our ‘buy-to-let’ modular homes avoid many of the pitfalls associated with traditional buy-to-let property investment. And, as part of our continuing efforts to offer the highest quality investments to our clients, our team of real asset professionals extensively research the housing market to stay informed about the various challenges and trends that are directing it.
Are you a property investor hoping to make a new buy-to-let investment in the next few months? Here are a few challenges you should consider.
Challenges Facing Buy-to-Let Property Landlords
In recent years, landlords have increasingly come under fire both culturally and systemically, resulting in several new and intensified obstacles to traditional buy-to-let property investment.
2023’s mortgage crisis put substantial strain on small-scale buy-to-let landlords, with many finding themselves priced out of their properties by surging mortgage rates. Though the housing market has improved somewhat in the lead-up to the Bank of England’s interest rate cut earlier this month, inflationary pressures still threaten to make remortgaging and housing costs more challenging for landlords with high loan-to-value mortgages.
Generally, small-scale landlords within the private rented sector are under mounting financial pressure as a result of buy-to-let market consolidation. According to a report by the Bank of England, the number of landlords who own only one rental property has shrunk since COVID, with half of all private renters surveyed claiming that their landlord owns at least five properties.
The same report suggests that landlords with only a few rental properties have been less likely to enter the market and more likely to exit it in recent years. This finding is reinforced by a 2021 survey conducted by the National Residential Landlords Association and the London School of Economics, wherein increasing costs, regulatory changes and heavier taxation were cited as the main reasons landlords were exiting the private rented sector in force – all problems that are more likely to impact small-scale landlords.
With the looming threat of the Renters Reform Bill, the buy-to-let market is subject to higher interest rates, transaction costs and legal scrutiny. As such, it deters many landlords from entering it. For example, court fees for landlords have risen by 10%.
Challenges Facing Buy-to-Let Property Renters
For buy-to-let renters, the knock-on impact of landlords being pushed out of the private rented sector and the transferral of rising housing costs causes record levels of no-fault evictions and homelessness. This year, three in ten landlords have indicated that they will be reducing the number of properties they hold or exiting the market entirely as a result of higher interest rates on buy-to-let mortgages and tax changes. Further to this, around 1 in 10 private rented sector tenancies that ended in the past three years were the result of an eviction, with 67% reporting that their landlord specifically wanted to sell or use their property. This represents a genuine threat to the available supply of buy-to-let housing, especially as demand for residential housing continues to rise.
Despite the Labour government’s plans to build 1.5 million homes in the next five years, only one in eight renters can currently afford to buy housing in the area in which they live. Any major shift in the availability of buy-to-let housing could severely skew the private rented sector and leave renters in a dangerously insecure position.
While this may represent an opportunity for buy-to-let property investors, it could also suggest that sweeping regulatory changes to protect these renters could be imminent, putting the long-term viability of buy-to-let property investment into question.
Challenges to the Buy-to-Let Property Market
Buy-to-let lending has been on a downtrend in recent years due to rising mortgage rates and more rigid profiling by major lenders. In the first quarter of this year, the number of new buy-to-let loans fell by 16.7% compared with the same quarter in 2023. Similarly, there were 600 buy-to-let mortgage possessions taken in the same quarter, up 39.5% on last year, and a 93% rise in the number of buy-to-let mortgages in arrears greater than 2.5% of the outstanding balance. These findings suggest that the buy-to-let market is on shaky ground following the 2023 mortgage crisis, with the risk of a crash increasing due to rising levels of debt among landlords and investors.
A report by real estate firm Savills suggests that residential property may have experienced a kind of post-COVID rental growth bubble, with prime residential property in London rising by an average of 23.1% – the strongest three-year growth period for a quarter of a century. While this has been attributed to a combination of an imbalance between demand and supply and high levels of underlying earnings growth, Savills suggests that 2024 could see a return to a more seasonal, stagnant buy-to-let market where a slowdown in rental growth could cause a widening divergence in landlord and tenant rent expectations.
A 2024 mortgage rate forecast by CBRE suggests that the private rented sector will continue to experience downward pressure due to affordability issues and uncertainty regarding interest rates. Should this come to pass, buy-to-let property investment could become an increasingly unattractive option for investors seeking consistent and reliable returns in an economic downturn.
Alternative Property Investment at Concept Capital Group
At Concept Capital Group, we offer an alternative to traditional buy-to-let property investment that allows our clients to hedge against the inflationary, regulatory and social pressures impacting conventional buy-to-let property.
Because our homes are classified as real assets, they are subject to different kinds of regulations that make them more accessible and affordable than traditional homes. With no stamp duty, no brokerage fees and no municipal property tax to eat into entry costs, our clients can enjoy higher yields while benefitting from our full property and tenancy management services.
For more information on our alternative buy-to-let property investment opportunities, book a call with our team today.
