What is the buy-to-let agenda for 2022?


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The real estate market exploded last year, including the buy-to-let (BTL) sector. According to UK Finance, BTL buying activity grew to £18 billion in 2021, a colossal 83% increase on activity in 2020.

Meanwhile, Shawbrook Bank’s 2021 Buy-to-Let report found that the value of the private rental sector grew by 5.8% in 2021, to £1.4bn.

Shawbrook predicts growing homeowner confidence, low mortgage rates and rising rental yields will further boost the sector. The report found that tenant demand had increased, with 42% of landlords reporting an increase in demand for their properties over the past 12 months.

Shawbrook found that two-thirds (67%) of property owners were confident about the future of the property market in 2022, with one-third (34%) planning to buy property in the coming year.

Lenders compete on price and criteria

MT Finance Director Joshua Elash says, “We expect a resurgence in the BTL space after two difficult years.

“Inflation is starting to bite. This is already translating into higher wages and will lead to higher rents. This, in turn, will bring higher returns to the sector, which will encourage more investment activity.

“The search for yield has driven much of the activity in the multi-occupancy home [HMO] and multi-unit block [MUB] sectors over the past few years, and this will continue to be an area of ​​growth as the rising cost of living will drive demand for these assets.

“As the country returns to work from offices, we expect an increasing number of tenants to return to the hub. This will drive demand, again particularly in the HMO and MUB sectors of the market. . »

Cheap mortgages

Shawbrook’s findings on homeowner optimism echo what brokers are seeing in the market. Aaron Strutt, director of product and communications at Trinity Financial, says demand for BTL is still massive and owners are more eager than ever to buy their first property or grow their portfolio.

He says: “Mortgage lenders compete on price and, increasingly, on criteria to attract borrowers, and they always tempt them with super cheap rates. So many types of people want to get a BTL because the investment property industry has performed so well over the years.

“Paragon has recently highlighted an increase in the number of borrowers in their 60s getting BTLs, while we often get calls from people in their 70s and 80s who want to make their money work harder and get a BTL.

I expect a further increase in the mortgage sector

“A lot of first-time buyers want an apartment building, as well as those who already own their house. Others ask for help figuring out what they need to do to build a portfolio. HMOs have grown in popularity due to rising rents, and more buyers want vacation rentals after demand soars during the pandemic.

Housing stock issues

However, investors looking to buy BTL properties may be frustrated by a lack of inventory. According to Propertymark, there were only 20 homes available on average per estate agency in November 2021 – the lowest figure for at least 20 years and 50% less than in November 2020.

Director of Your Mortgage Decisions, Dominik Lipnicki, says: “While rising house prices as well as rents are driving many to buy an investment property, the lack of inventory will mean lower BTL purchases compared to 2021. .

Rates from the biggest lenders will need to rise dramatically before landlords start saying they’re expensive

“That said, the market will remain strong, further fueled by the low BTL mortgage rates offered by lenders.”

Investors who can find a property to buy can be sure of tenant demand. According to Propertymark, the average number of potential new tenants was the highest on record for the month of November 2021, with 82 tenants per Propertymark member branch, compared to 71 in October.

Where to invest

For investors getting involved in BTL for the first time or expanding their portfolio, they would be well advised to consult Aldermore Bank’s Buy to Let City Tracker to decide on a location to invest in.

The tracker analyzes and evaluates five key indicators that impact the desirability of BTL: average total rent; the best short-term returns through yield; long-term returns thanks to the growth in property prices over the past decade; the lowest number of vacant dwellings as a proportion of the total housing stock; and the percentage of the city’s population in the rental market.

With the base rate expected to rise further this year, owners may be keen to lock in earlier and longer

Aldermore’s latest tracker ranks Bristol as the UK’s best city for BTL investment in 2022, with Oxford, Cambridge, Manchester and Luton not far behind.

Sectors occupied

Gerard Boon, Partner at Boon Brokers, says: “In terms of apps that are likely to thrive in 2022, we have seen a significant increase in BTL apps from limited companies in 2021.

“I think this is largely due to tax advantages and the competitive interest rate environment for limited liability company applications. If these mortgage products remain competitive in 2022, I expect demand for such applications continues to increase.

Boon continues: “We also expect an increase in demand for properties with a high energy performance certificate. [EPC] ratings compared to those with low EPC ratings. Lenders are starting to promote exclusive products for properties with high EPC ratings.

Lack of stock will mean lower BTL purchases compared to 2021

“In particular, NatWest offers ‘green’ mortgage products with lower interest rates than its basic range.

“Additionally, as regulations are expected to favor construction of high EPC properties, we expect demand for lower EPC properties to continue to decline in the residential and BTL markets.”

Will homeowners seek to remortgage?

The Bank of England has already raised interest rates once in recent months, with the bank’s monetary policy committee raising the base rate from a record low of 0.1% to 0.25% in December 2021. .

Some experts are expecting further increases in the base rate to deal with soaring inflation which hit 5.4% in December.

Others say rising interest rates will likely lead to higher mortgage lending as homeowners seek to protect their profits from rising mortgage costs.

Many first-time buyers want an apartment building, as well as those who already own their home

Mark Harris, Managing Director of SPF Private Clients, said: “Remortgaging will be a key area for homeowners in 2022. An estimated £60bn of BTL mortgages are due to mature this year.

“In January 2017, the Prudential Regulation Authority introduced new underwriting standards. It is no coincidence that at this time and thereafter the level of subscribed five-year patches increased significantly. “

Harris adds: “Given expectations that the base rate will rise further this year, owners may wish to lock in earlier and for longer.”

Lipnicki says, “The desire to buy remains as strong as ever, but the sheer lack of inventory will limit that side of the market.

“I foresee a further increase in the mortgage industry as borrowers scramble to secure a fixed deal and use the lower loan-to-value ratio due to the price of their property increasing, often substantially since their last mortgage.”

Experts also say rising interest rates are unlikely to deter potential investors from buying more BTL properties, with rates still low by historical standards.

We expect a resurgence in the BTL space after two tough years

Strutt says: “Rates from the biggest lenders will have to rise significantly before landlords start saying they are expensive.

“Birmingham Midshires have a 1.21% two-year fix or a 1.59% five-year fix. Buy-to-let mortgages are now artificially low, and long-running homeowners know what a bargain they are. The gap between the cheapest residential mortgages and BTLs is still marginal and narrowing.

“More lenders have increased their LTV so landlords don’t need to put down such large deposits, and they’re offering options to work around increasingly tight rents.”

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