Bear with us - is now the best time to invest in buy-to-let?

Hear us out. We’re fully aware of the state of the buy-to-let market right now. We read the same newspapers you do. 

We’re also operating in the current market. We work with buy-to-let brokers and borrowers on a daily basis. They’re all plenty vocal about the issues they’re coming up against. We have no intention of belittling or trivialising the challenges out there. Challenges which may only worsen in the short term. 

Some of which, catch even us by surprise. We have been lending since 2006. We have supported countless landlords and property investors as they attempt to contribute to our economy, and provide a much-needed service for renters. Which is why we were taken aback by the suggestion that landlords are not working people.

Not to take a political stance, but this rhetoric embodies the reality many landlords are up against. Landlords in the PRS are being demonised to an extent, and are viewed as prime targets for tougher legislation, and taxation. 

Everyone is aware of the potential consequences of this. Many landlords are quitting the sector entirely, which will only lead to dire consequences for renters themselves. The Renters’ Rights Bill, tax changes, legislative shifts and more have simply led to a widespread pessimistic outlook.

But, scratch beneath the surface, and it is possible to find some golden nuggets of positivity. If landlords can look beyond all the negativity, they’re likely to realise that there’s still plenty of life in the PRS. We suspect many know this to be true deep down too. They may just need reminding of the market’s potential. 

High yields, a lot of stock, and cheap deals 

So, let’s look at the facts. Yes, some landlords have looked to exit the market in recent months, and more yet may do so. But, the much-hyped widespread landlord exodus has, arguably, yet to materialise. The number of properties on the sales market was down by nearly a fifth between June and September 2024, according to Lomond.

Also, should we see a mass sell off over the coming months, escaping landlords will have to sell to someone. Properties simply don’t disappear. Expanding landlords, who are unafraid of a challenge, could secure residential assets at a decent price. Indeed, running for the exit signs in the middle of a flash sale may be a tad short-sighted. 

Fortunately, many appear to recognise this. In Q2 2024, there were 51,459 new buy-to-let loans advanced in the UK, worth £8.9bn. This was 26% higher than the same quarter a year prior. 

Moreover, the average interest rate across all new buy-to-let loans in the UK was 5.19% in Q2, down 21 basis points from Q1, according to UK Finance. We shouldn’t really be surprised by this demand, considering the average gross buy-to-let rental yield for the UK in Q2 2024 was 6.9%. 

Appetite from lenders is also still there. The number of buy-to-let mortgage products rose for the fifth consecutive month in October, according to the latest Moneyfacts data. Also, the average two-year fixed rate dropped to 5.24% in October, the lowest level seen in over two years. So, the number of buy-to-let products is rising, while their costs are plummeting. 

Of course, even with all this, the residential buy-to-let market may simply be too risky or expensive for some at the moment. For those, there may be opportunity in adjacent fields. The commercial market could offer reprieve for landlords seeking out new alternatives. 

We may be in the early days of a rebound in the commercial buy-to-let scene. As Savills noted recently, the MSCI total return for office, retail and industrial went positive in August for the first time in over two years. Even those assets which faced the biggest challenges in a post-pandemic landscape are now showing signs of life once again. 

In Q3 2024, Central London office take-up increased for the second consecutive quarter according to CBRE, while investment volumes rose to the tune of £1.2bn in a single quarter. There is still room to grow too, with Savills expecting UK commercial property investments to end up 20% higher this year compared to 2023. 

We saw the writing on the wall 

The challenges the rental market is facing at the moment don’t scare us at Market Financial Solutions. We’ve already been through countless “doomsdays” since our founding. The 2008 credit crunch, Brexit fallout, and global pandemic all threatened to spell the end of property investment as we knew it. 

But each time, the market bounced back. We’ve got enough experience behind us to know that temporary economic or legislative challenges are just that – temporary. 

Give it a few months for the dust to settle, and we’ll adjust. Our worst fears will appear overblown. We saw the writing on the wall in recent years as the 2022 mini-budget fallout emerged, and a new government came to power. 

Which is why we worked hard to provide solutions for challenges that were yet to fully materialise. As things became tricker in the residential buy-to-let market, we believed many property investors would look to diversify into the commercial scene. We launched our commercial buy-to-let mortgages to accommodate this, and provide all the flexibility and speed that commercial landlords would need.

Then there are those who may still have faith that the overall rental market is moving in the right direction, but will be slowed down by short term turbulence. For these property investors, we created our Bridge Fusion product which allows borrowers to wait-out market uncertainty with an optional 12-month term extension. 

At Market Financial Solutions, we always embrace positivity regardless of any temporary dilemmas. We’re there for property investors who have the same outlook.