The Intermediary – February 2025 - Flipbook - Page 26
BUY-TO-LET
Opinion
A long way from
the worst
T
he year has started off
in a positive fashion,
with a large number
of landlord borrowers
deciding not to let the
grass grow under their
feet, particularly in a sector which
– despite an increase in Stamp Duty
costs – still presents a very sizeable
investment opportunity for those
willing and able to take it.
Certainly, no one would say the
Budget was particularly positive
for the sector, but even as early as
December it was clear to see from our
business applications and transaction
levels, particularly purchase, that
landlords were still commied to the
sector and were feeling more positive.
Of course, a lot of that comes from
having certainty about what the ‘rules
of the game’ now are. No one will have
enjoyed hearing from the Chancellor
that the Stamp Duty surcharge for
additional property purchases was
going to be upped immediately to
5%, but leing the dust sele on that
decision, and just simply being aware
of it, allows landlords to factor in
those extra costs.
Plus, of course, in the immediate
aermath we did hear from landlords
who were able to mitigate against
those extra costs on deals they were
already working on. Negotiating a
lower purchase price, for instance.
More to be done
Overall, certainty tends to bring
activity, and building through
December and into January we saw
that activity increase as both new and
existing landlords sensed that, despite
some positive words about improving
the UK housing market, much still
rests on the ability of the private
rental sector (PRS) to house those who
can’t – or don’t wish to – get on the
housing ladder.
That disconnect between supply
and demand is still as sharp as it has
been for the last few years, which
26
The Intermediary | February 2025
continues to result in the strong rental
yield figures we are seeing from all the
regions of the UK in which Fleet lends.
Our latest ‘Rental Barometer Index’
shows this in abundance, with strong
annual rental yield figures across all
but one region, the West Midlands,
and this had only seen a slight
0.5% drop.
In areas like the North East (9.3%),
Yorkshire & Humberside (8.6%), and
the North West (8.3%), we are seeing
particularly strong yields, while
even the lowest, Greater London, is
showing a 5.8% yield. This will clearly
lead to landlords seeking investment
opportunities that can deliver the
same level of yield, potentially in the
same regions as they are currently
invested in, but also further afield.
There’s no doubting that a
continued shi in mortgage pricing is
also helping investment activity, even
if there have been some recent ups
and downs in that regard. In the last
quarter of 2024, both Fleet’s average
75% loan-to-value (LTV) 2-year and
5-year fixed-rates had fallen from the
previous quarter, and our anticipation
is that we should continue to see this
going in the right direction.
Of course, we did have a bump up
in swaps during the middle of January
which impacted pricing, but the good
news coming out of the UK in terms
of a dip in inflation and an increase
in GDP sent swaps back in the other
direction quite sharply.
It does show a level of volatility,
which clearly both landlord borrowers
and their advisers need to be on top of,
but even as you read this, we may well
have had a further cut in Bank Base
Rate in February. This was wrien at
the tail end of January, by the way.
The mood music as I write was
swinging in that direction certainly,
and with the Governor of the Bank of
England Andrew Bailey being very
bullish about four potential rate cuts
this year, with another Monetary
Policy Commiee (MPC) member
STEVE COX
is chief commercial officer at
Fleet Mortgages
talking about cuts up to a possible
150 basis points, then it’s possible to
envisage the Base Rate being well into
the 3% zone by the end of 2025.
That, as we all know, makes a
considerable difference to landlord
borrower affordability. Even now,
we’re seeing an oen much-maligned
demographic, the first-time landlord,
also making a strong reappearance
as more new investors recognise the
strong income and capital growth that
can still be achieved through the PRS.
Even if the Government is able to
get anywhere near its 1.5 million new
homes target by the end of the decade,
population growth over the past 10 to
15 years alone still needs to be met by
housing, and with many people being
priced out of buying, the steadfast
option remains a PRS property.
2024, according to the Intermediary
Mortgage Lenders Association
(IMLA), ended with approximately
£33bn of buy-to-let lending, up from
just over £30bn in 2023. It anticipates
that this will rise again over the next
year or two, up to £38bn in 2025
and £42bn in 2026, with buy-to-let
purchase activity continuing to grow,
of course alongside a strengthening
refinance market.
My own inclination is to suggest
these figures might actually be a lile
conservative, especially if we can
continue the theme of the early weeks
of 2025 well into the year ahead.
Landlords are resilient at even
the worst of times, but this current
environment feels like a long way
from the ‘worst’; instead, I would hope
advisers are able to sense and benefit
from greater buy-to-let activity levels.
As a specialist lender in this area, we
certainly have an appetite to support
you in these endeavours. ●
