You will note that I tend to focus specifically on the first-time buyer market, lenders and the high loan-to-value (LTV) sector, and the options that the latter can provide the former.
However, what is clear in the UK housing market, is just how important the private rental sector (PRS) and buy-to-let is to the prospects of first-time buyers given just how many begin their independent housing journey renting before attempting to get on the property ladder.
That clarity has unfortunately not always been evident amongst politicians, Government ministers or policy-makers in recent times, and hence we find ourselves with the current situation – a lack of supply in the PRS coupled with a rising demand, plus mortgage interest rate increases and a rise in landlord costs, ultimately delivering headaches for landlords, particularly those with only a small number of properties, resulting in significantly higher rents to tenants.
These obstacles within the sector have resulted in landlords looking elsewhere, either leaving the PRS completely, or reworking portfolios towards the house in multiple occupation (HMO)/multi-unit block property type, or holiday/short-term lets, that have a better chance of delivering the yield they need to make a profit.
In simple terms, we see it within buy-to-let lending. The latest figures out of UK Finance revealed new buy-to-let lending reached £6.3bn in the last quarter of 2023, a huge 55.4% drop on the same quarter in 2022.
Barriers to entry for new buy-to-let landlords are significant and growing – large deposit requirements, plus extra charges on stamp duty, coupled with higher mortgage costs and greater responsibilities for landlords, not forgetting the lack of mortgage interest tax relief.
That said, for those who can overcome these barriers, property remains a strong long-term investment, and if the numbers can work, over a 15, 20, or 25-year period, rental income plus capital increases can make it all worthwhile.
However, as mentioned, even for seasoned professional landlords, it is no easy feat to manage an existing portfolio, let alone grow it.
And, why does this matter to first-time buyers? Well, clearly if you are renting and trying to save for a deposit, all of the above means you are likely to be paying more in rent each month than you have ever done.
Unless you can access the Bank of Mum & Dad, it is going to be long slog to saving the required deposit, even with new products such a 99% LTV mortgage.
What ideally you would want, is a vast array of quality, PRS property supply available, competition amongst landlords to secure tenants, and therefore a dampening mechanism on rent increases.
Unfortunately, it doesn’t look like we are getting any of this soon, and therefore you would think there might be some concern that we continue to bump along the bottom, with landlords unable to add to portfolios, and no extra supply for them to buy anyway.
However – and this is a significant positive for the sector – we do have a very strong lending community within the buy-to-let space, and the number of lenders active within it appear to be growing.
Indeed, you might well argue, that – given the numbers outlined above – the buy-to-let landlord borrower is more than well-catered for, and if the situation was as bad as it might appear to be, then why would we have a considerable number of lenders either active in it, or looking to be active in it?
We know that buy-to-let can be a gateway for new lenders in order to make their first foray into the mortgage market, but increasingly we have specialist operators who do not appear to be looking to use buy-to-let as a stepping stone, but are simply looking to make their mark.
Whether this, of course, remains sustainable – particularly if the numbers do continue to trend in their current direction – remains to be seen.
What I would say is that we still have a very sizeable buy-to-let mortgage market built up over many years, and that while new lending has tailed off, there are still large numbers of borrowers invested for the long-term and therefore requiring refinancing on those properties every few years.
However, and perhaps back to the first-time buyer matter in hand, what should be readily apparent here is the need for both buy-to-let and the owner-occupier markets to work in tandem, rather than being seen as directly opposed to each, which I’m afraid Government over the past 10 years has definitely seen it as.
That focus on hitting the buy-to-let/PRS market and forcing landlords out, in order to give more options to first-time buyers, has simply not worked. Not least because our population has grown and they require places to live – the number of people in the UK in 2014 was 64.6 million, this year it is around 68 million and in 10 years’ time it is projected to be around 72 million.
That’s a big jump and therefore whoever forms the next Government needs to break with the policies of the recent past, and instead truly focus on more supply for both the PRS and owner-occupiers. Without this, the lives of both renters and would-be first-timer buyers will continue to be very difficult indeed.
Patrick Bamford is head of international business development at Qualis Credit Risk, part of AmTrust International
