Looking Ahead at the BTL Market in 2023
By Steve Cox, Chief Commercial Officer, Fleet Mortgages
So here we are, 2023 has arrived, and the mortgage market appears to have picked up some steam already, with product and rate changes starting in our buy-to-let corner as lenders like ourselves seek to support advisers and their landlord clients.
At this point I’m supposed to fire out a series of predictions about what may be coming in the buy-to-let and private rental sector in the next 12 months, however this is notoriously difficult and perhaps first I’ll look at what the major trade bodies are anticipating.
In December we had a couple of predictions on buy-to-let lending activity in the year ahead from both UK Finance and IMLA, and they make intriguing reading, particularly in light of the mood music we’ve been hearing around the sector over the last six months or so.
UK Finance suggested that 2022 total buy-to-let lending was £56bn, of which £18bn was for purchase and £38bn for remortgaging; next year it anticipates that both areas of our market will be subdued compared to last year, suggesting total lending will come in at £43bn, comprising £13bn of purchase and £30bn of remortgaging.
IMLA is on the same path and not too far away in terms of its figures for both 2022 and what it expects for 2023. For last year, it too says £56bn, although split £17bn purchase/£39bn remortgaging, and is a little bit more upbeat about the sector’s prospects in the forthcoming year, suggesting total lending of £47bn, split £14bn purchase/£33bn remortgaging.
Now this might seem like a sizeable drop in lending volume for the buy-to-let sector but dig a little deeper and you’ll see that the figures actually only take us back to the level being achieved in 2021, just with a more remortgage-dominant market over the next couple of years.
However, again on the positive side, as a share of the overall lending pie, buy-to-let is predicted to maintain a proportion of approximately 17/18% over the next couple of years.
I think there’s little doubt that purchase activity has been down – particularly since the ‘Mini Budget’ – as landlords and their advisers have sought to work out where their financial situation currently sits, what they could access in terms of products and rates, and whether the end of last year was truly the right time to be adding to their portfolios.
The irony of course is that if you had a mortgage market that looked more like it did prior to the Autumn of last year, then all the fundamentals for further investment in the PRS for landlords are there. Tenant demand is strong, the supply of properties is outstripped by that demand, there are still major obstacles for those seeking to become homeowners, plus the lack of social housing, in addition to the difficulties inherent within the planning system.
It all adds up to a sector which, as it has done for the last decade and then some, will continue to meet the housing needs of millions of households and – even if (as seems likely) landlords continue to feel the pressure of an increased regulatory and financial burden, they will still want to both retain their investment and, where possible, add to it.
Of course, that’s where advisers like yourselves are going to be needed more than ever. When the buy-to-let mortgage market is benign, seasoned landlords might feel they can ‘sort the finance out themselves’.
We are very far from a benign environment and when you add in ongoing considerations such as EPC requirements, use of limited companies, a greater likelihood of landlords wanting higher-yielding properties such as HMOs and multi-unit blocks, then the need for specialist buy-to-let financial advice becomes ever greater.
Not forgetting what is likely to be the number one concern for existing landlords in 2023 – what am I able to achieve in terms of refinancing my existing debt at a level which does not make this property unprofitable? As noted, rates have gone up, and while they have also tracked down in the last month or so, they are still likely to be higher than the previous deal.
That being the case, advisers will be in a crucial position to support remortgaging landlords in this endeavour, whether it be through a shorter-term tracker or finding a longer-term fix that is going to work for the duration, or one that does allow them to access the built-up equity in order to add to portfolios.
It will all be placed in the adviser’s hands and the good news is that you still have fully-engaged lenders like Fleet, who are committed to this sector, have the funding appetite across multiple areas, and the expertise to help you get the very best outcomes for your landlord clients. If there’s one thing you can count on in 2023, it is that.