A friend asked me recently whether buy-to-let (BTL) was still worth it as an attractive investment.
The fact that this friend has never seemed even remotely interested in property investment before demonstrates how ingrained this notion that buy-to-let is a dying asset class has become.
But as I said to my friend: yes, there is still money to be made in buy-to-let, as long as you seek advice about what and where to buy and how to structure your portfolio.
If you’re not willing to put in the time and effort it takes to do it properly, you won’t make money. It’s that simple.
Successful landlords are a professional breed and need to be in today’s environment to navigate the market successfully.
The consumer press has a difficult time understanding that and is convinced landlords have given up on the sector.
But the fact is there are still multiple landlords fighting over each property.
There’s no denying the past few years have been tough, and the market is significantly smaller than it was in 2022. But you can say the same about the mainstream mortgage market.
Buy-to-let lending had a far better 2024 than people expected.
A year ago, the Intermediary Mortgage Lenders Association (IMLA) predicted £27bn of BTL lending for the 2024, whereas it actually come in at £33.2bn.
IMLA believes the BTL market will continue its recovery over the next two years, with lending forecast to come in at £38bn in 2025 and £42bn in 2026.
If that happens, there’s no doubt that the specialist sector will be a key driver of that growth. That’s the way the market has been heading for some time now.
Serious players tend to use the whole property lifecycle and often use short term finance to support their investment strategy – buying well, quickly and improving the asset from a capital appreciation and rental angle.
We’ve seen a huge rise in the number of landlords buying through limited companies ever since the previous Government abolished tax relief on mortgage interest payments.
According to Hamptons, a record 50,000 buy-to-let companies were set up in 2023.
The 2024 total is likely to be even higher, with the latest data available showing that landlords had already set up 46,449 by September.
Given that the mainstream players broadly don’t operate in this area of the market, 2025 should be a strong year for specialist lenders in what should be a growing buy-to-let market.
Clearly though, there remains some uncertainty, particularly around the future direction of interest rates, which will have a major impact on activity this year.
There’s also political risk. The one thing landlords feared most in the run up to the last Budget was a hike in Capital Gains Tax on second properties.
Although, sensibly, the Government opted against it.
However, landlords didn’t come away unscathed, as they were hit with higher Stamp Duty bills.
As I have said before publicly, I believe this will have a marginal effect on purchase activity.
It may well put off smaller landlords, but larger landlords will simply see it as a cost of doing business and take a longer term view.
What does concern me slightly is what’s to come.
My worry is that this Government, like many before it, will come to see landlords as an easy target to drum up extra revenue.
To date, landlords have weathered the pressure heaped on them by politicians.
They’ve adapted to higher Stamp Duty rates, the removal of tax relief on mortgage interest and increased regulation.
But there will be a tipping point. Maybe not any time soon, but there will be a point where landlords say enough is enough, if politicians continue to turn the screw.
Critics might say: so what? But the reality is the private rented sector (PRS) provides homes for nearly one in five households.
Not that I think they will, but hypothetically speaking, what would happen if landlords did decide to call it a day en masse? Where would these people live then?
The Government is right to want to build more social housing, but this is a multi-year project – it won’t happen overnight. Therefore, we need a healthy PRS.
This isn’t a zero-sum game – or at least, it doesn’t have to be. There’s no reason why social housing, home ownership and the PRS can’t co-exist peacefully.
In fact, I’d argue that a healthy housing market is one in which people can choose the tenure that suits them best.
Politicians don’t seem to understand this. Their default instinct is to kick landlords. It’s an easy political win, given how unpopular landlords are among the public.
That may be so. But kick too hard and the consequences will be dire.
Hopefully our elected leaders come to realise this in 2025.
Andrew Ferguson is head of buy-to-let at West One Loans
