The year ahead seems to promise a varied landscape for landlords, akin to the fluctuations experienced in 2023. A stabilized financial forecast looms on the horizon, yet the trajectory of rising rents persists, setting the tone for the coming months.
The paramount concern for homeowners and buy-to-let landlords, escalating mortgage rates, has remained a focal point for the past couple of years. Many households and investors transitioning from sub-2% rates now grapple with new products averaging around 6%.
Amidst this scenario, cash owners and buyers emerged as the primary beneficiaries, along with individuals employing lower leverage levels. However, the ripple effect has impacted house prices and transaction volumes, constraining affordability. This shift ensued in response to the Bank of England’s escalation of its base rate to a 14-year high of 5.25%.
Anticipated Interest Rate Fluctuations
Projections for 2024 yield a spectrum of expectations, continually subject to alterations amid the evolving economic panorama. Most experts lean toward the anticipation of the Bank of England initiating a gradual reduction in interest rates in the forthcoming months. Encouragingly, mortgage rates have already embarked on a descent since autumn, accompanied by an upsurge in product availability.
David Hollingworth, associate director at London & Country Mortgages, noted, “Many experts foresee the Bank Rate maintaining stability until later in 2024. The Bank of England has consistently expressed commitment to take necessary measures to curtail inflation, still significantly above the current threshold.”
He added, “Mortgage rates have shown a shift, with fixed rates declining after the rapid surge in the summer. Presently, numerous lowest five-year fixed rates fall well below 4.50%, with two-year rates below 5%. Further adjustments are likely, possibly trending toward 4.25% and 4.75% for the respective periods as we enter the New Year.”
While hopes lingered for a swifter decline in interest rates within the property market, the anticipated downward trajectory over the coming year stands poised to bolster buyer confidence and enhance borrowing capabilities.
Rising Rents as a Counterbalance
Amidst the ascent in borrowing costs for mortgaged landlords, the parallel surge in rental prices has partly offset this trend, elevating rental yields. The confluence of a scarcity of rental properties and heightened tenant demand, characterized by longer tenancies, underpins the sector’s escalating rents. Notably, Homelet’s data reveals a more than 20% increase in rental prices on newly agreed tenancies across the UK over two years.
In specific locales like Manchester and Birmingham, comparable rates of rent escalation have materialized, propelled by an influx of individuals seeking alternatives outside London. This surge has notably augmented yields for landlords operating in these regions.
Letting agents report a staggering influx of tenant inquiries, with some regions witnessing over 50 queries per rental property. Rightmove’s data underscores a notable spike, with the number of prospective tenants per property more than tripling from 2019 to 2023, soaring from six to 20.
Rob Dix, co-founder of Property Hub, observed, “Rising rents in recent years have somewhat balanced the impact of escalating mortgage rates. Landlords should ensure they’re charging at market rates during lease renewals.”
He added optimistically, “Although cost reduction avenues are limited, the easing trajectory of mortgage rates suggests that for those renewing in 2024, the scenario might not be as dire as initially perceived.”
The evolving interplay between mortgage rates and rising rents continues to define the landscape for landlords as they navigate the uncertainties and opportunities presented in the property market in the year ahead.