What's in store for the BTL market?

This article is part of
Guide to the buy-to-let market

What's in store for the BTL market?

So, what are the prospects for the BTL market in 2023?

Property prices have increased enormously over the past 10 years, but rental incomes have not increased at quite the same rate. 

Karen Noye, a mortgage expert at Quilter, explains when borrowing was at an all-time low and the stress tests were much more favourable, the difference between house price and rent growth was not so apparent. 

Article continues after advert

“However, in the higher interest rate environment we are now in, landlords are more limited in terms of what they can borrow, especially where a mortgage is already in place, and higher mortgage costs have resulted in a smaller profit margin for landlords,” she says.

“Over the past few months, we have witnessed a sizeable fall in the level of demand in the mortgage market, driven by the slowdown in the housing market.”

Tough times still ahead

While mortgage rates have dipped somewhat since the highs seen towards the end of last year, monthly costs remain far higher than many people had become accustomed to in recent years.

Noye adds: “Many landlords have had to put up their rents, but if the tenant(s) cannot afford the increased rent then the landlord may find themselves in a position where they need to find new tenants and/or have empty properties on their books.”

Luke Thompson, a financial adviser at PAB Wealth, agrees.

His biggest concern is landlords potentially leaving the market and flooding the market with properties and driving house prices lower.

Thompson says: “It’s going to be a tough year in the BTL sector and will continue to be so until interest rates drop. It is important to remember as well that we are coming off record-high house prices coupled with high interest rates.

“There won’t be many bargains to be had for investors, which would make me think that not many landlords will be looking to buy this year." 

Rate rollercoaster 

Carl Shave, director at Just Mortgage Brokers, says the BTL market will stagnate for the first half of 2023.

However, when the mortgage market has settled with lenders having adjusted their criteria to better suit, landlords will see the fall in property prices as an opportunity to once again invest in property.

Meanwhile, Nicholas Mendes, mortgage technical manager at John Charcol, says he expects mortgage rates will continue to be in a state of flux, despite fixed rates reducing slightly and swaps also reducing beginning of 2023.

Currently, tracker and discounted products remain cheaper than many fixed rate mortgage deals. 

With the base rate expected to peak at 4.25 per cent, and recent economic analysis commentary revising forecasting that any base rate decrease is unlikely until 2024, those with multiple properties coming out of a fix in 2023 may find it prudent to diversify their portfolio product mix.