The buy-to-let (BTL) sector has faced significant challenges in recent years, with economic uncertainty and changing legislation contributing to BTL purchase lending falling dramatically in 2023. Rising interest rates are partly to blame, making it hard for potential BTL buyers to pass lenders’ affordability tests.
However, 2025 and beyond could offer an improving picture, with plenty of opportunities for savvy investors in the BTL market.
Falling Returns
Over the past two years the average BTL property’s total return has fallen, driven by a decrease in capital appreciation and a sharp rise in agency fees and mortgage costs – this is despite a climb in rental income over the same period. The upshot is that although landlords are continuing to benefit from a healthy level of rental income from BTL properties, this is being offset by other factors, such as significantly higher property maintenance costs.
Small Landlords Selling Up
The pressures around interest rates and new regulations have seen many small landlords (who perhaps own just one or two BTL properties) leave the sector. Rather than being an ‘easy investment’, BTL properties have now become a trickier option for many landlords, with increased red tape and rapidly decreasing profits making some think twice about becoming a landlord at all.
Landlords are a crucial presence in the UK housing market, and experts in real estate – like Emile Salame – understand that the upside of new regulations is the growing professionalism of the private rental housing sector. Furthermore, the exodus of many smaller landlords from the market has meant that, for larger landlords, there may be bargains to take advantage of. As well as providing robust rental incomes, this is also positive news for tenants: professional landlords typically future-proof their properties in terms of sustainability, safety and quality – ultimately meaning better homes for tenants.
Looking Ahead
For landlords and tenants, the near future is likely to be a time of adapting to change in the BTL sector. It is anticipated by many property professionals that house rents and prices will continue to rise, exacerbating the balance of supply and demand. This is something that investors could benefit from, particularly in relation to capital and rental growth. Landlords willing and able to adapt their strategies could make the most of this growth – and as these landlords adjust, we could see a much-needed stabilisation of the rental and BTL market.
For more information about BTL, take a look at the embedded PDF.
