Confidence within the UK housing market is clear to see from the latest price and activity trends, and property investors are strengthening their portfolios.
It’s business as usual once more for the majority of buyers and sellers looking to get their transactions across the line as we enter the final few months of the year, which is buoying house prices across the UK.
The economic outlook is one reason for this, with falling inflation over the past year taking off some of the affordability pressures on buyers. This is closely linked with the Bank of England’s upcoming decision on whether to reduce interest rates once more – which of course has a knock-on effect on the mortgage market.
And it is this improving mortgage market that seems to be holding the interest of landlords and property investors, too, as buy-to-let rates have improved considerably since the highs of 2023.
Over the course of this year, property investors and landlords have seen sub-4% mortgage rates being offered by competitive lenders, while the average has now fallen to around 4.33%, according to the latest figures from Octane Capital.
Property investors buoyed by the market
While there have been numerous headlines debating an exodus of landlords, largely fuelled by a demand-supply imbalance in the private rented sector, along with conditions becoming more difficult particularly for heavily leveraged landlords, Octane Capital’s data looks from another angle.
Back in September last year, its data showed that buy-to-let mortgages had risen to 5.99%, up from an average of just 1.70% for landlords and property investors taking out borrowing in December 2021. This means monthly mortgage payments were hiked from £286 for interest-only mortgages, up to £1,071 last September – a huge 274% rise.
Although this inevitably impacted many mortgaged landlords who have remortgaged over the past couple of years, the situation is improving – and alongside extremely high tenant demand, strong yields and positive house price growth, the industry is still drawing in property investors who can make a profit from renting out homes.
In August, the Bank of England cut interest rates from 5.25% down to 5%, and a further reduction next month is now expected as a result of positive inflation news. Meanwhile, the average buy-to-let mortgage rate has fallen to 4.33%, according to Octane Capital, shaving 25% off the monthly cost of the average repayment mortgage (down to £801).
The hope – and expectation – is that rates will continue to come down, albeit not to the same low levels the market had grown accustomed to over the pre-pandemic years. Yet, historically, interest rates have hovered at a much higher level. For example, in the 1990s, 6.94% was the lowest rate recorded (from 1998).
Are landlords leaving?
Research from Pegasus Insight, as noted by Octane Capital, revealed that buy-to-let property investors in fact increased their portfolio sizes between the first and second quarter of this year, from an average of 7.2 properties to 7.6.
Confidence and appetite varies across the country, though, with property investors in the East Midlands being the most active and increasing their average portfolios by 2.5 properties during the time frame.
Other strong areas were Wales, where property investors upped their collections by 1.9 properties, followed by the North West (+1.0), the East of England (+0.5) and the South East (+0.5).
CEO of Octane Capital, Jonathan Samuels, said: “Our new Labour government has shown early signs of intent with respect to rental market reforms, the majority of which are seemingly designed to further deter investment within the buy-to-let sector.
“Despite this, those intent on remaining within the sector are doing so with confidence, with landlords across the nation bolstering their portfolio sizes so far this year.
“This confidence has come following the greater degree of mortgage market certainty that has materialised following a hold on interest rates and, as a result, landlords are benefiting from reduced monthly mortgage costs.”
If you’re keen to get on track with your next UK property investment in one of the country’s top-performing locations, get in touch with BuyAssociation today, or browse some of our current opportunities for property investors.
