"The golden era for buy-to-let landlords came to an end in September 2022. The availability of 'cheap' money that fuelled the expansion of many portfolios came to an end with a crash."
Higher mortgage rates, greater regulation and already stretched tenants will arguably make 2023 a tough year for landlords.
Newspage asked mortgage brokers and property experts for their views on what will happen to buy to let in 2023. Some predict an exodus, while others believe next year could be an opportunity for savvy and cash rich landlords.
Riz Malik, director at R3 Mortgages: "The golden era for buy-to-let landlords came to an end in September 2022. The availability of 'cheap' money that fuelled the expansion of many portfolios came to an end with a crash. Within a year, being able to borrow 75% of the value of the property has gone from being the norm to nigh on impossible, especially in London and the South East. Many landlords will be looking at their portfolios over the Christmas break to decide what to stick with and what to twist. With rising costs, taxation and regulatory requirements, many will be deciding whether enough is enough."
Craig Fish, founder and director at Lodestone Mortgages & Protection: "The outlook for landlords is certainly not as bright as it once was. The new regulation surrounding EPC ratings is going to cost many landlords a lot of money, and this on top of higher interest rates and more stringent ICR calculations could see many landlords exit the market in 2023. Those that don't will likely be increasing rents to alleviate some of the pain. That said, I do expect lenders to continue to reduce rates, and we are now seeing some lenders improve their ICR calculations and hopefully this continues. 2022 has been a year for reflection and it seems that only professional portfolio landlords who aren't highly geared will be the ones to weather the storm successfully. Buy-to-let has changed forever, but this will be to the detriment of tenants and those in need of a home."
Lewis Shaw, owner and mortgage broker at Riverside Mortgages: "What will 2023 hold for buy-to-let landlords? It won't just be a lump of coal but a massive sackful of the black stuff. Any landlord with a mortgage expiring in the next 12 months, unless it's been on repayment for the past five years, will find themselves in a very tricky position. Expect a fire sale of buy-to-let properties once landlords realise what awaits them with their next mortgage renewal. So off the back of that, if I were holding a buy-to-let mortgage above 60% LTV, I'd be selling up and looking to do a deal faster than a Tory peer with a dodgy PPE contract. Although I'd probably avoid a moonlight flit to Honduras."
Peter Williams, CEO at Propp: "After the chaos that was the final quarter of 2022, 2023 will be an opportunity for landlords in strong cash positions to capitalise on the market correction. Residential affordability remains tough, which will keep first-time buyers in the private rental sector and further stoke tenant demand, driving rents higher still. In terms of an exodus, less experienced landlords may choose to sell as their margins are squeezed but experienced landlords are playing a long game and know the value in capital appreciation. In 2023, rents will rise and mortgage rates will fall, but more importantly so will stress tests. Don't forget lenders need to lend money to make money, so we will see more innovation like we are currently seeing with lower rate/higher fee products to mitigate the affordability challenges since the mini-Budget."
Stuart Cheetham, CEO at MPowered Mortgages: "Landlords face three major challenges in 2023. Firstly, they will struggle to remortgage. Remortgaging to try and get a better rate simply won't be possible for many landlords as the rental yield calculation no longer works for most lenders given the higher interest rates we now have, meaning landlords will end up with larger monthly payments as a result. Secondly, the tax advantage of renting no longer exists in the same way it did before. Buy-to-let mortgages are not tax-deductible, so many landlords face significant losses in the next few years. Third, cash-rich landlords may be at an advantage. It’s not all bad news for landlords. Rental yields are increasing as rents rise and prices soften and there will undoubtedly be some good properties to buy from distressed sales."
Tom Collier, director at Advantage FS: "As we enter 2023, the buy-to-let market is fraught with uncertainty. It’s not just higher interest rates that are a concern but the increased stress rates used to calculate how much you can borrow. Many lenders simply won’t lend enough. The buy-to-let product transfer market will be huge in 2023, and many will be faced with no option but to stay with their current lender. Taxes continue to discourage new investors, but let’s face it, property is still a reliable investment so many landlords will dig in. Equally, many will decide to sell, which will lead to a greater supply of houses and a reduction in values. Landlords will have to face the uncomfortable decision to increase rent. The good news is that most lenders have already priced in base rate increases. All in all, 2022 was rocky, ending in an incomparable way to how it began."
Samuel Mather-Holgate, IFA at Mather and Murray Financial: "The housing market is in the process of imploding and it's going to be spectacular. It won't hit rock bottom until the summer and a lot of pain will be felt by landlords needing to sell because they cannot afford their mortgage payments. The market will come back, as the government changes course on market stimulus and the central bank pivots on interest rates. The second half of the year will see bargains galore and that's the time for landlords to get into the market. Until then, put your hard hat on and buckle up."
Justin Moy, managing director at EHF Mortgages: "With the increase in mortgage rates, this will likely be the point where 'accidental' landlords and people with one or two properties will seriously consider selling, and taking their profits. Professional landlords will see this as a potential opportunity to buy property at a good price and will look to borrow more even if rates are higher. Those landlords exiting will typically be selling 2-3 bedroom properties, which is appealing to homemovers and other landlords, but may push prices down too. We have already seen some better mortgage rates for landlords, however, they are balanced with higher fees, so we may see the pricing see-saw bring us some interesting options in early 2023. But rents will inevitably need to increase to cover this extra cost, which is bad news for already stretched tenants."
Imogen Sporle, head of property finance at Finanze: "Although the EPC changes are making the outlook rather bleak for landlords, the future is positive with a higher demand for rental properties now more than ever. The knock-on effect from base rate rises causing lenders to have higher DSCR calculations and therefore needing to increase the rent on the properties, coupled with tenants already having to cope with the ever-increasing cost of living, makes me think we will see a record number of missed rental payments from tenants. Rents will continue to rise and mortgage rates will, too, however I doubt they will rise as rapidly as they have this year."
David Robinson, co-founder at Wildcat Law: "Who would be a landlord in 2023? With rent defaults and interest repayments set to skyrocket, you can expect a raft of landlords across the country to go under. With a slow housing market, there simply will not be enough buyers to bail landlords out who need to exit their portfolios rapidly. The already overbooked bankruptcy courts will need to start clocking overtime. The so-called perfect storm won't feel quite so perfect for those impacted. The irony is that it will probably make the housing situation worse as housing stock becomes dormant awaiting sale."
Mike Staton, director at Staton Mortgages: "With the announcement the EU legislation was being reviewed following the last mini-Budget, it’s given me hope that 2023 may be a better year for landlords. Also, with Santander recently relaxing affordability rules, I expect other lenders to follow suit. The landlords that are able to ride out this storm will be the winners."
Amit Patel, adviser at Trinity Finance: "Since the debacle of the mini-Budget, landlords have been stressed about the 'stress rates' being applied to their mortgages and this trend will continue into 2023/2024. Landlords coming to the end of their current deal where they are highly geared will hurt the most. Landlords will exit the market as running a buy-to-let becomes financially unviable for them. This will create an opportunity for savvy investors and first-time buyers to purchase properties at potentially below-market value. Rates will most likely stay where they are and landlords will need to exercise extreme caution before increasing their rents as their tenants may not be able to afford it. Better to have rent coming in than a vacant property, especially if tenants are quality. In short, 2022 has been a massive wake-up call for landlords and 2023 could be even worse."
