Whereas most surveys of the private rental sector tend to highlight disgruntled landlords selling off their properties in response to increasing regulations and market pressures, a new study by United Trust Bank (UTB) presents a notably different picture, revealing a more optimistic outlook for the sector.
According to the findings, more than half (58%) of brokers operating within the buy-to-let space report that the majority of their landlord clients are focused on expanding their portfolios rather than selling properties. This suggests that, despite the challenges the sector faces, there is still a substantial number of landlords who are confident in their investments and keen to grow their holdings.
The research further indicates that 65% of brokers believe landlords who are looking to expand their portfolios are increasingly interested in more unconventional, higher-yielding property types. These include Houses in Multiple Occupation (HMOs) and multi-unit blocks (MUBs), which are seen as providing greater returns compared to traditional single-unit rentals. This shift reflects an emerging trend where landlords are diversifying their investments and seeking opportunities that offer better rental yields and higher cash flow.
This evolution in landlord behaviour suggests that, rather than pulling out of the market, many are adapting to the changing landscape by focusing on properties that can offer more lucrative returns, particularly in areas with strong rental demand. The trend toward HMOs and MUBs highlights landlords’ growing interest in properties that can accommodate multiple tenants, reducing the risk of vacancy and increasing overall rental income.
The study offers a refreshing contrast to the negative headlines often associated with the private rental market. While some landlords may be leaving the sector, others are seizing the opportunity to expand and diversify, indicating a more nuanced picture of the buy-to-let market. It demonstrates that there is still confidence in the market, albeit with a shift in strategy towards more profitable and less traditional property types.
This trend also suggests that the private rental sector is evolving and adapting in response to market conditions. With increasing interest in properties that generate higher yields, landlords are clearly looking for ways to make their investments more resilient, ensuring that they can continue to profit despite rising costs and regulatory changes. It’s a sign that, for many, the buy-to-let market remains a valuable and profitable avenue for investment, especially with the right approach to property selection and portfolio growth.
The research found that, while the Buy-to-Let (BTL) market has not been as vibrant as it was prior to the Truss Budget of 2022, which caused a significant rise in interest rates, there are still opportunities available, with continued activity in the market.
Among the brokers surveyed, 60% disagreed with the notion that BTL business had significantly declined over the past six months, and only 32% reported that most of their BTL business was product transfers. This suggests that, while the market is not as active as before, there are still substantial dealings taking place, indicating a degree of resilience in the sector.
However, 61% of brokers acknowledged that landlords with just one property were more likely to exit the market than those with more extensive BTL portfolios. This trend points to a consolidation in the sector, where more experienced landlords are holding on to their investments while those with fewer properties may be opting to sell due to the financial pressures of rising interest rates and increased regulation.
Buster Tolfree, director of mortgages at UTB, comments: “Just as we’re finding in the residential market, mortgage brokers are increasingly helping landlords with specialist BTL mortgages, either due to the properties they are buying and refinancing or because of their individual circumstances.” This highlights a growing trend where brokers are offering tailored mortgage solutions to landlords facing unique challenges in the current market.
The positive takeaway for brokers, Tolfree adds, is that there is a growing number of specialist mortgage lenders, including UTB, who can cater to landlords’ specific needs. This growing availability of specialised lending options is seen as a key factor in enabling landlords to navigate the current market, providing them with the financial flexibility they need to expand or refinance their portfolios.
“It is even more pleasing to see that most brokers are still finding opportunities in the Buy-to-Let (BTL) mortgage space, which reflects our own experience over the last year,” says a spokesperson from UTB. This observation highlights that, despite the challenges posed by rising interest rates and market uncertainty, brokers are still identifying avenues for growth and success within the BTL market.
Landlords are increasingly looking to acquire more unconventional types of properties in locations that may not be ideal for homeowners but still offer great potential for rental yields. Examples include flats located above or adjacent to commercial properties. These types of investments often generate higher returns than a typical three-bedroom semi-detached house, helping to offset the rising cost of borrowing that many landlords face in today’s climate.
UTB has seen a substantial increase in activity within the BTL sector, with its BTL mortgage sales up by approximately 35% compared to the whole of 2023. In addition, applications have risen by around 53% over the same period, demonstrating strong demand for their services. This surge in activity not only reflects the continued interest in BTL mortgages but also indicates that brokers are responding positively to UTB’s offerings, suggesting that the lender is successfully meeting the needs of landlords in a challenging market.
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