Ideal Buy-to-Let Contractor Investment Window Open (For Now)

Last Updated: 25-02-2022

Reading Time: 8 minutes

rental homesFor years, investing in property has benefited contractors looking to squirrel away their profits.

That same Buy-to-Let market is flourishing despite (or because of) rising interest rates and inflation.

Today, we take a quick dive into the figures that back up the trend. Moreover, what they might mean for rental income over the next couple of years.

We also gauge reaction from the industry, and how that bodes for the buoyant, bustling buy-to-let investment opportunity.

Table of contents

UK Finance figures (housing market, whole)

To get some context on Buy-to-Let, it helps to see where it sits in the overall housing market picture. These are the key points from UK Finance's summary/forecast for 2021-2023 housing activity (estimates):

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2021-23 overall gross lending forecasts (GBP)

Projection estimates for the values of lending:

  • 2021: to peak at £316bn;
    • +31% on 2020;
  • 2022: moderate to £281bn;
  • 2023: increase to £313bn;

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2021 homebuyer transactions (volume)

Total house purchases, including cash purchases:

  • expected to reach 1.5 million in 2021 (when all data collated);
    • + 47% than 2020;
    • the largest volume since the 2007/2008 Financial Crisis.

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2021 borrowing catalysts

The spread of investment was mainly proportioned thus:

  • house purchase, £200bn;
    • +53% on 2020;
  • homeowner remortgaging, £62bn;
    • marginal decrease on 2020;
  • Buy-to-let, £18bn;
    • +83% on 2020.

These predictions suggest that we won't see the manic buying activity of 2021 for the next couple of years. Even so, should they bear out, they'll still represent an increase on 2019 and 2021 figures.

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Buy-to-Let report, Shawbrook Bank

Contractor landlords will have felt the impact of new taxation laws and heightened regulation on the Buy-to-Let market. These factors had already persuaded some landlords to sell up and leave the market entirely.

The pandemic also had an impact on the thought process of renters:

  • the preference/necessity of working from home has negated the commute;
  • multiple lockdowns saw homeowners and renters alike look to leave the cities for more space;
  • Stamp Duty Holiday was the catalyst for renters to take the plunge and buy their own homes.

This combination of factors saw the Private Rental Sector actually decrease by 2.6% in 2021. Now that the dust is settling, though, the PRS' fortunes look set to change.

For the full research and insight, you can download Shawbrook's PDF.

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Factors indicating imminent Buy-to-Let growth

There are a few indicative changes highlighted in Shawbrook Bank's Buy-to-Let report that suggests upcoming growth. March 2021 saw house price growth of 9.9% year on year. By comparison, Buy-to-Let prices rose 5.6% over a similar period.

When tasked, existing landlords reported that:

  • 42% have seen demand increase over the last year;
  • 67% are confident about the short-term future of the property market;
  • 34% plan to buy a property in the coming year.

Also key to this trend is the changing mood of the nation.

Renting is often seen as the homeowner's poorer cousin. And, yes: house price growth prevents many renters from becoming homebuyers. This is one reason people in rented accommodation remain there for longer.

But Shawbrook's research suggests other factors now play a part. Here are a few renters' responses that suggest the tide is turning:

  • 49% expect to rent in perpetuity;
  • 10% prefer the reduced responsibility of renting;
  • 7% enjoy access to better locations compared to locations of mortgaged properties.

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Industry reaction

Here's a round-up of commentators' thoughts on BTL:

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Joshua Elash, MT Finance: bigger yields in the pipeline

With inflation soaring past government targets, wage increases are beginning to catch up. This will have the knock-on effect of higher rent, greater yield and more attractive investment opportunities for landlords.

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Aaron Strutt, Trinity Financial: lenders compete at criteria level

We've long been used to mortgage lenders competing on interest rates. But what's especially interesting for contractors is that they're now competing at criteria level, too.

This may be one reason why the over 60s have been able to begin a property portfolio to supplement pensions. Even people in their 70s and 80s are enquiring about buy-to-let, as well as first-time buyers.

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Propertymark: availability will restrict market performance

While the willingness to invest in property is there, available housing stock is at a 20-year low, while would-be investors are on an all-time high waiting list.

In November 2021, their research reported just 20 homes per estate agent branch versus 82 prospective landlords. That's 4.5 potential landlords for every rental property.

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Gerard Boon, Boon Brokers: Ltd Co. Buy-to-Let applications rising

A combination of tax benefits and cheap interest rates drove an increase of Ltd Co. applications. This demand looks set to continue in 2022.

Also emerging is the demand for homes with high EPC ratings. Lenders' comparatively cheaper interest rates on ‘green' mortgages could further increase interest.

For more industry reaction, visit Mortgage Strategy's article: What's on the agenda for buy-to-let in 2022?

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Interest rates could drive a surge in BTL remortgages

New underwriting standards for Buy-to-Let came into force in 2017. Many landlords locked in 5-year fixed deals then.

The Bank of England also raised the borrowing base rate in December 2021. The expectation is for this to rise in line with inflation over 2022.

A combination of these factors could force many landlords to lock in new fixed-term mortgages sooner rather than later.

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This window of opportunity won't stay open for long

At the time of writing, there are still cheap Buy-to-Let remortgage deals. But they may have a limited shelf life if the BoE raises rates further.

With this in mind, plus the competition for every new Buy-to-Let property that comes to market, time is very much of the essence. If you're looking to either lock in a new deal or begin investing in property, expediency is key.

Talk to us about your investment opportunity before taking the plunge. Our experts can answer all your questions with no obligation. Plus, they can find the buy-to-let mortgage best aligned with your status and vision should you require. Thank you.

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Author: John Yerou

John Yerou is a pioneer of contractor mortgages and owner and founder of Freelancer Financials, Contractor Mortgages®, C&F Mortgages and Self Employed Mortgages, trading styles and brands of the award-winning Mortgage Quest Ltd.

Posted by John Yerou

on February 25th, 2022 09:12am in Blogs, Mortgage Blog.