The buy-to-let sector is likely to contract in the new year, according to this week’s FTAdviser podcast guests, as landlords battle with higher mortgage rates and navigate a landscape that is becoming increasingly regulated.
2022 has been a turbulent year for the sector, particularly in the wake of September’s “mini” Budget when landlords were exposed to significant increases in their mortgage repayments as a result of rising interest rates.
Rates have stabilised somewhat in the past two months, but the cost of operating as a buy-to-let landlord has jumped.
The burden of this is likely to be carried by renters - either through higher rents or through a reduction in the properties available to lease as a result of landlords exiting the market.
Appearing on the FTAdviser podcast, mortgage broker Paul Holland, managing director of Henchurch Lane Financial Services explained that a contraction in the market is to be expected in the new year but that part of this will be a correction back to normal pre-pandemic activity.
“A ‘shrinkage’ in the market is a little bit misleading because the market has been at 130 per cent for the last two years. So the first bit of shrinkage is actually going to bring things back down to normal levels,” Holland said.
“On top of that there is likely to be some sort of further shrinkage. But that’s not going to be a bad thing. It will ultimately result in there being a small downturn in house prices and there will be some deals for people that are in it for the long term [as a result].”
In Holland’s view, the fall in house prices that is expected over the next two years is a positive development because they rose too sharply during the pandemic.
“Even if there is a 10 or 15 per cent reduction, that should be welcomed. It shouldn’t be something that people are worrying about,” Holland told FTAdviser.
Echoing this statement, fellow mortgage broker Adele Forbes, managing director of West Yorkshire Money said she expects to see greater professionalisation within the sector in the new year.
Forbes said this was partly the result of stringent stress testing from lenders that are “pushing smaller landlords out”.
jane.matthews@ft.com