Whilst 2024 has been a far more positive year for the UK property market, the landscape remains a challenging one for BTL investors, who are still having to adapt their investment strategy to contend with high mortgage rates.
Property market positivity has been growing all year.
Since February this year, mortgage approvals have consistently been at or above 60,000 per month, reaching 68,000 in October.
Just this month, Halifax also reported that house price growth has been abundant, with property values climbing for the fifth consecutive month, recording the strongest monthly rate of growth seen so far this year and the highest annual rate seen since November 2022.
However, despite 2024 bringing two cuts to the Bank of England base rate, wider economic headwinds mean that the mortgage market hasn’t responded as we might have hoped, particularly with respect to the rates on offer to BTL landlords.
In fact, since the Autumn Budget, our research shows that the average BTL mortgage rate on offer has crept up by 0.14%.
As a result, the average landlord is now paying 2.5% more a month for a full repayment and 5.9% for an interest only repayment.
Additional figures also demonstrate that the higher cost of borrowing has had an impact on the BTL landscape.
The average BTL loan value has fallen by -16.2% year on year, as landlords tighten their belts in the face of higher borrowing costs.
What’s more, the average portfolio value has also fallen by some 11.8% annually, suggesting that landlords are looking to more affordable investment opportunities in order to minimise the mortgage required and the interest paid.
But it’s certainly not all doom and gloom as we approach the end of the year.
Despite BTL investors looking to streamline their portfolios from a financial standpoint, the average number of BTL loans held has actually increased, up from 5.3 to 6.4 a year ago.
It’s also important to note that, whilst BTL mortgage rates have crept up since the Autumn Budget, they remain some 1.02% lower versus a year ago.
This means that the average monthly payment is some 7% down for a full repayment and -22.8% down for an interest only repayment.
The challenging facing BTL investors has also created opportunity in the specialist space.
Many investors are now searching for better yields to provide protection from rising rates and running costs - refurbishment finance can help investors engineer value.
At Octane we have seen a significant increase in house to HMO conversion enquiries, as investors have spotted this asset class as the quickest route to improved returns.
The bridging sector has increased by over 15% from last year, showing that it can play a vital role in helping investors to navigate market conditions.
So, whilst the BTL landscape continues to prove challenging as a result of higher mortgage rates, there’s no doubt about two things.
The picture is improving, and the appetite for investment remains, albeit investors are having to adjust their strategy as the landscape continues to evolve.
