Make no bones about it, the BTL lending figures for 2024 will have surprised many commentators, particularly given the increase from 2023, and the anticipation of further improvements to follow.
It will certainly be surprising to those who have continued to predict the death of BTL due to the various regulatory, taxation, and economic barriers placed in the way of UK landlords, not forgetting the most recent one in last year’s Budget, a further increase in the stamp duty surcharge to 5%.
Going into 2025, I would be very surprised if we didn’t see landlord confidence continue to inch up, not least because of the anticipation of a lower rate environment persisting into the year ahead, but also because the fundamentals of the PRS continue to play out in landlords’ favour.
There’s no doubting, for instance, that we remain at a point where the number of PRS homes available, when compared to tenant demand, is still below the levels required, and this is producing not just strong monthly rents, but also strong yield, at a time when it looks like capital values might also be inching up further as well.
These three economic fundamentals for landlords are clearly vitally important and, with them all in positive territory, this is leading to existing landlords in particular to look at the growth options for their portfolios and to review and ascertain what works best for them in terms of adding property to it.
One key driving force of the market at the moment is the quest for yield, but also set against a backdrop where that tenant demand/supply imbalance continues to play out.
Hence, we are seeing many more landlords — who might previously not have been minded to purchase these properties — looking at both HMOs and MUBs much more seriously.
Now, we understand that such properties come with more requirements and responsibilities when it comes to owning and letting them out but, landlords, once they have been in the sector for a time, tend to feel much more confident in terms of taking these on, and this is certainly being demonstrated in terms of the lending business we are seeing.
In the same vein, if we’re looking at property type to diversify a portfolio or indeed de-risk it, then landlords are much happier to look at short-term or holiday lets. They are also reviewing mixed-use properties, such as residential with a hint of commercial, as a means to operate in a range of different property type ‘sectors’ which can help them if, for example, one or more of their ‘vanilla’ residential properties are not currently delivering the yield required.
Again, by the same token, landlords are increasingly prepared to look beyond their own geographical confines, a trend that has grown in recent years, particularly as we’ve seen a certain North/South divide in terms of greater levels of yield being found in the North of the country.
Overall, and this may well surprise some laymen when it comes to the BTL sector, existing landlords are increasingly seeking the ways and means in which they can add to their portfolios and are not afraid to look at property types beyond the typical residential in order to do so.
It leads us to a point where the average portfolio size of the landlord customer we see is around about eight properties, which of course puts them firmly in the professional category, even if it might still not be a full-time job for them.
While we would fully expect the market to continue to be dominated by those who are already invested with a sizeable portfolio, the market is clearly not off-limits to first-time landlords either.
They are increasingly moving onto the property playing field, perhaps enthused and inspired by the same fundamentals and opportunities that are being grasped by existing landlords.
What we tend to find is that making the first property investment purchase is the big hurdle to get over but, that generally — if they find BTL is for them — they can move swiftly up the ladder in terms of growing portfolios.
Part of our focus is to work with first-time landlords and to help them with such ambitions. This will be a strong focus for Foundation through 2025 and beyond, as will supporting those advisers who have landlord clients, or are seeking to help new ones purchase a first property.
Overall therefore, there is much to be positive about in the BTL space this year.
Certainly, we have a very strong appetite to lend to those landlords who require specialist finance, across multiple property types and to ensure we meet their various needs and ambitions.
The suggestion is that we’ll continue to see growth in BTL lending through 2025 and 2026 and we certainly intend to play a major part in this.
