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Is It the End of the Buy to Let Boom?

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Is It the End of the Buy to Let Boom?
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Buy to Let has been extremely popular over the past two decades. The UK property market has continued to grow since the turn of the century, and this means that flocks of landlords have rushed to buy a house and let it out for profit.

According to Halifax, the average price of a UK home at the end of 1999 was £91,199. In the second half of 2023, this figure has now gone up by 220% to £291,385. Furthermore, with interest rates remaining relatively low throughout much of the past two decades, this means that Buy to Let has been increasingly profitable.

But with economic conditions changing, is the Buy to Let boom in the UK finally over? Some key figures suggest that it is, which has caused plenty of landlords to reconsider their investment decisions.

We’ve explained exactly what’s happening in the market, and what has caused these changes, in the blog below. Keep reading to find out all the answers you need.

What is Buy to Let?

When you purchase a property under a ‘Buy to Let’ mortgage, it means that you will not be living there yourself and will instead be renting it out to tenants. Your mortgage will usually be interest-only, which makes it more affordable, and enables you to make a profit by renting out the house to a tenant.

However, whit or Buy to Let term comes to an end, you will need to either sell the house, remortgage it, or pay off the loan entirely.

A Buy to Let property is usually purchased as an investment. Your mortgage lender may demand a larger deposit, though, which can be at least 25% in many cases.

What is the Buy to Let Boom and What Caused It?

Over the past decade, Buy to Let properties have become increasingly popular for UK investors. In a recent calendar year, more than 211,000 Buy to Let mortgages were approved by UK lenders, and in the past two decades, the number of privately rented homes grew by 126%.

The Buy to Let boom over the past two decades was primarily caused by low interest rates and economic incentives introduced by the UK government. Periods of rental properties being in short supply also increased demand for landlords owning Buy to Let houses, which turned the tables in their favour.

Plenty of property experts initially expected these positive Buy to Let trends to dip during the post-Brexit uncertainty and Covid-19 pandemic. However, government initiatives such as the stamp duty extension in 2021 helped to breathe new life into the Buy to Let market.

What has caused landlords to sell their Buy to Let properties?

In recent years, there have been plenty of external factors contributing to the declining interest in Buy to Let.

Firstly, mortgage costs have risen significantly due to 14+ consecutive interest rate rises. This has had an enormous impact on the profitability of Buy to Let as an investment for landlords. For example, in 2022 the average two-year fixed interest rate was 3.41%, but as of December 2023, this has gone up to 6.24%.

The UK government has also introduced new legislation regarding the eco efficiency of properties in the country, meaning that any house being let out now needs to have a minimum EPC rating of ‘C’. A huge proportion of Buy to Let houses do not meet this criteria, and landlords are therefore selling these properties before the law changes come into effect in 2025.

There has also been a change to the way Buy to Let incomes are taxed.

Meanwhile, in Scotland, landlords seem to be selling their Buy to Let properties are a greater rate than anywhere else in the UK. This has been largely caused by the Scottish government introducing rent caps, along with tighter rules and regulations. These changes have increased costs and reduced profitability for landlords in Scotland, and several have now decided to cut their losses.

Is it the end of the Buy to Let boom?

Lots of statistics and anecdotes suggest that the UK’s Buy to Let bubble has finally burst.

As of the second half of 2023, the average yearly return on a buy-to-let property was £1,817, down from £6,046 one year prior (a decline of 70%).

The share of mortgage lending for buy-to-let properties was just 8.1% in Q2 2023, the lowest share recorded since the end of 2010. Furthermore, in the first half of 2023, 850 buy-to-let properties were repossessed.

These figures all demonstrate the declining interest in Buy to Let, which has been primarily kickstarted by the huge interest rate rises throughout 2022 and 2023.

Are landlords increasing their monthly rent prices?

One of the main methods UK landlords are using to maintain a profit on Buy to Let property is by increasing the rent they charge their tenants. Unfortunately, there is lots of evidence that rental prices are continuing to go up at a faster rate than the average salary in the country.

Figures suggest that in a recent calendar year, rental prices went up by the following amount:

  • England: 6%
  • Wales: 6.9%
  • Scotland: 6.2%
  • Northern Ireland: 9.6%
  • London: 6.8%

Unfortunately, this reduces the affordability of rental properties for the average citizen, and therefore decreases the number of applicants for each available house.

An increasing number of people are suspected to be living with friends and family to combat this, as renting is usually more affordable when you are residing with other people.

Where are prices falling for renters in the UK?

According to data from Rightmove, there are a few areas in the UK where renting is becoming more affordable. Landlords may be forced to decrease their prices in these locations to attract buyers (thereby reducing the profit they make), causing this reduction in prices.

Some of the main locations where rent prices fell between 2022 and 2023 include:

  • Burnley: -7%
  • Hartlepool: -6%
  • Redland, Bristol: -4%
  • Sale, Manchester: -2%
  • Ladywood, Birmingham: -2%

Some of the wealthier parts of London have also experienced a decline in rental prices. For example, Kentish Town, Richmond, Muswell Hill and Camden have all been reported to experience falling prices in the past year.

Student hotspots in the UK

While the average number of Buy to Let investments has significantly decreased in the UK, the towns that remain as a ‘student hotspot’ have rallied against these falling numbers.

Plenty of universities across the country have announced increased student intake in recent years, with just a few examples being Essex, Coventry and UCL. These towns will therefore have a higher number of young people looking for rented accommodation – and some landlords are still capitalising on this and continuing to invest in these areas.

Are landlords selling their tenanted properties?

With the enormous interest rate rises throughout 2022 and 2023, plenty of landlords have simply been ‘cutting their losses’. Data from Savills indicates that people who sold buy-to-let in 2023 made £10,500 less than those who did so in 2022.

In many instances, cutting your losses may involve selling a house with tenants living in-situ. If you want more guidance on selling a tenanted property then get in touch with We Buy Any Home today.

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