"Given the ongoing changes and challenges in the buy-to-let sector, it is important advisers do all they can to align themselves with established/existing landlords and actively work to provide assistance"
In the 2024 Autumn Budget, Chancellor Rachel Reeves announced the stamp duty surcharge on all second homes would rise from 3% to 5% with immediate effect.
This came as an unwelcome surprise to landlords and buy-to-let investors, many of whom are now likely to encounter higher upfront costs when purchasing additional properties.
While the move has been touted as a way to make housing more accessible for first-time buyers, it could also have a profound impact on the property market as a whole by discouraging investment in the rental sector and potentially reshaping the BTL landscape.
The buy-to-let market has seen quite a lot of change over the last few years, with mortgage interest tax relief changes, stricter energy-efficiency requirements and the recent Renters Reform Bill all having a significant impact on the sector.
Rising interest rates and higher inflation over the last two years also hit the sector hard, reducing yields and further squeezing reducing profit margins, which led to some landlords selling up and exiting the sector.
Given the recent hike in stamp duty, it is widely expected that more landlords will consider their options, potentially further exacerbating a decline in the number of properties available in the private rental sector. The good news to place against this is that rates did begin to fall last year, making affordability easier to achieve and opening up more product solutions for all types of landlords.
This situation meant that, despite some of the prevailing winds for buy-to-let, gross lending in the sector actually recovered in 2024, up to £33.2bn – according to the latest IMLA figures – and predicted by the trade body to increase further over the course of the next two years.
IMLA believe buy-to-let lending will hit £38bn this year and £42bn next. However, it remains to be seen what split there will be between ongoing purchase activity in the buy-to-let space, and what will be remortgaging.
UK Finance, for instance, predict buy-to-let purchase lending will drop further this year – by 7% - to £9bn, with any increase in gross mortgage lending for buy-to-let coming via the remortgage sector.
This is understandable given potentially many would-be landlords may be deterred from entering the market, because of the uptick in costs while other small-scale landlords might be discouraged from investing further and expanding their portfolios.
However, what may well happen, is we see a continuation of the trend we have seen over the past decade. Existing landlords, who might be defined as profession with over four buy-to-let mortgages on properties, being much more willing and able to purchase more, and almost unanimously adding property via a limited company vehicle because of the tax advantages to be had here.
At the same time, we should not simply assume all buy-to-let business will come through limited companies. There are hundreds of thousands of legacy buy-to-let mortgages in the individual name of the landlord still in the marketplace, and given stamp duty has just been increased – and moving from an individual name to a company counts as a sale and will be charged this tax – then we might anticipate many landlords will be keeping some of their properties like this and require remortgage finance as an individual.
This presents advisers with the opportunity to mine their current client book and revisit the needs and business opportunities that may arise through any current buy-to-let clients. Which is particularly important given the fact the numbers of first-time landlords may drop even further on the back of the last year’s budget.
Cultivating strong relationships with larger portfolio landlords should also be a priority for advisers as this type of buy-to-let borrower is more likely to have regular remortgaging and product transfer needs.
It would also place them in the best position to help these borrowers extract equity for future purchases, a likely scenario for those portfolio landlords with plans for expansion, or in the event that the trend towards large-scale buy-to-let landlords continues.
Given the ongoing changes and challenges in the buy-to-let sector, it is important advisers do all they can to align themselves with established/existing landlords and actively work to provide assistance and advice to help them address their needs.
This can be achieved by proactively managing existing client databases, closely aligning themselves with buy-to-let clients and working with lenders and networks that offer a broad range of buy-to-let borrowing solutions.
