How to make the most of a re-energised Buy-to-Let market in 2024
Learn more about our Buy-to-Let offer.
By Sophie Mitchell-Charman, Commercial Director
After the January we’ve had, we could all be forgiven for thinking the good times are back and here to stay in the Buy-to-Let market.
But we shouldn’t be too quick to forget the lessons of the turbulence of the last few years; a re energised market is great and something we all should welcome, but it is incumbent on lenders, brokers and landlords to manage this environment from a position of cautious optimism, to avoid the hard stops and challenges of when the market changes.
We expect rates to remain lower throughout 2024 than they were last year, and this can provide landlords with ample opportunity to:
- Remortgage – properly – for the first time in 2 years: many landlords will have sat on reversion or variable rates since the mortgage rate spike of summer 2024 waiting for a calm down in the market
- Expand: According to a survey of landlords by IMLA, a majority of landlords plan to expand their portfolios in 2024. After a year where many sat out of the market, the opportunity is back for them now.
What do landlords need to succeed in this environment?
In a market where price is dictated a lot by Swap rates, they can expect some homogeneity across pricing from different lenders.
And despite the good news of recent weeks, Swap rates will remain fluid throughout 2024, so landlords should not be making their decisions based wholly on price.
Future-proofing, diversification and expansion should all be the considerations of using the opportunity of 2024 to build a robust portfolio.
Here’s how.
Remortgaging right
For many who have sat on variable rates, the temptation now rates have fallen from last year’s high may be to remortgage quickly.
However, while rates have gone up and down; the rental market has changed.
In Zoopla’s rental market report, they expect a slowdown in rental growth as the last two years of inflation has far outstripped an increase in incomes, as the mismatch between supply and demand has pushed prices up, and renters themselves have shown resistance to too many price increases.
Zoopla expects the ‘rental market supply-demand imbalance’ to turn in 2024 as new supply begins to enter the market. This, combined with slow wage growth and cost of living challenges can be expected to put pressure on landlord rental yields.
A remortgage on lower rates now may be tempting, but if value hasn’t been added to the home in a way that meaningfully increases the offer to tenants, landlords could find themselves with properties they struggle to fill, despite the demand we all know is out there.
So what’s out there to help landlords overcome this challenge?
This month we launched an 85% LTV Landlord Refurbishment Bridge designed for this express purpose.
With 85% day 1, rolled interest to protect monthly outgoings and no monitoring on works, it is a way of backing landlords looking to add value to their homes.
Just some examples we’ve seen recently include loft conversions for extra rooms, single storey extensions and using the loan to fund change of use from a long-term let to a holiday let.
Similarly, we don’t cap the number of rooms in an HMO the refurbishment can finish with, and with our own Buy-to-Let products backing HMOs up to 15 rooms, there is lots of potential in using bridging to expand rental capacity within an existing portfolio.
While there is still demand, landlords should be looking at how to meet it. If an increase in headwinds may push rental prices down, landlords need to protect their assets by thinking cleverly here, and seeing what they can build in to their portfolios.
Expansion
The same principle of the 85% LTV Landlord Refurbishment Bridge applies not just in remortgaging, but in expanding portfolios with new properties.
Purchase, refurbish, rent. It’s a tale as old as the Buy-to-Let market, and with higher LTV and more trust placed in the landlord to do the work they know best, they can maximise the potential in the market by really creating high-quality homes for tenants.
A majority of landlords aren’t what we’d classify as portfolio landlords, but with the appetite to get back out there, there’s no reason more couldn’t be in the years to come.
Indeed, portfolios can help mitigate against challenges like the past two years because of more diversification and risk spread across multiple assets, not just one or two.
So how best to do that?
One option is incorporating as a Limited Company, something we consider ourselves a specialist in. Landlords choose this path because of the taxation benefits and the boost it gives to growing portfolios by retaining profits within a company to fund future purchases.
This step can make managing growing portfolios simpler.
The other step is knowing the right properties to buy.
For a multitude of reasons, auction finance will present a real opportunity in that regard in 2024.
Unfortunately for many, the economic pressures of the past year have created an unenviable home situation which will push up the number of distressed sales.
We saw this pattern last year, and expect it to continue, some key stats:
- 22.1%: The YoY growth in the number of properties listed for auction in Jan-Jul 2023
- 82%: The sale rate at auction in 2023 (Auction House London)
- 33.77%: Increase in properties for offered for sale in 2023 compared to 2022
- 85%-90%: Average sale value of a house sold at auction compared to market value
Once again, bridging finance will have a large role to play here if you plan to successfully expand your portfolio this way.
A lender who knows how to navigate a fast purchase with a bridge before moving into a swift Buy-to-Let exit will be incredibly beneficial to landlords looking to the future.
Looking forward
It may feel like we’ve overcome the broader market challenges and it is all smooth sailing from here, however as ever in the Buy-to-Let market, that is rarely the case.
To succeed in 2024 landlords need to be proactive and thoughtful about what’s best for their portfolios, and the right lender and right suite of products needs to be there for them to do that.