"The fundamentals are all increasing favourable, certainly in terms of house prices moving upwards, tenant demand remaining strong, mortgage pricing coming down, and crucially, landlords wanting to stay invested/add to portfolios. "
2024 is drawing to a close and while there has clearly been some negativity around the buy-to-let space – in particular landlords’ continued willingness to be involved and indeed to add to portfolios – I feel particularly positive about the sector as we move closer to the new year.
That said, let’s focus on the perceived negativity first and of course it comes in the form of the Government’s decision to hike the stamp duty surcharge on the purchase of additional properties.
My view, and this has been the case for consecutive Governments now over a 10-year-plus period, is that they have tended to anticipate or perhaps wished, that stamp duty hikes will facilitate a situation where available properties are more likely to be bought by first-time buyers rather than landlords, because they assume landlords are put off by higher stamp duty costs.
Now, of course, landlords are not likely to want to pay more in stamp duty when purchasing – that is absolutely the case – however it tends not to be a defining element when it comes to making that decision.
For example, if a property purchase was going to work for a landlord at a 3% stamp duty surcharge, I would suggest it is still going to work at 5%. Or rather what is more likely – and we have certainly seen this since the Budget – landlords will simply go back to the vendor and renegotiate (where possible) on price to factor in the increased stamp duty.
Again, if you’re the vendor and you feel you are a long way into the process of purchasing with a particular landlord buyer, would you be unprepared to renegotiate? Perhaps but that doesn’t seem likely.
But what is more likely is that you will come to some sort of agreement. Plus, of course, you’re going to be weighing up the situation depending on what type of vendor you are.
The landlord purchaser will not have a long chain of other buyers/sellers behind them and that is often attractive to a lot of vendors. Plus, refusing to budge or renegotiate means that the sale, as it stands, is over and they will need to go back to square one, finding a new buyer, moving the process on, etc.
My point here is that yes, some landlords may be put off by a larger stamp duty payout, but it tends not to be enough to stop them from purchasing.
Also, there is a strong argument to suggest that the type of properties first-timer buyers want are not necessarily the ones that landlords want. And that makes the first-time buyer versus landlord purchase ‘battle’ less intense as well.
Finally, by not increasing CGT on the sale of additional properties, the Government has effectively stopped any further landlord exodus/sales. That is what landlords were most fearful of before the Budget, and the fact this wasn’t introduced, means they can stay invested and keep those properties within the PRS. And they can utilise these properties, and the equity within, in order to facilitate future purchase activity.
My view is that the Government, in some small respect, has recognised that a further exodus of property from the PRS would be a bad thing, and so instead opted for a stamp duty hike, perhaps either knowingly (or indeed unknowingly) aware that this is unlikely to mean more landlords selling up to first-time buyers.
Although, weirdly, in its Budget documentation this was the stated purpose of the stamp duty hike. It’s a contradiction of sorts but on the scale of these two measures, an increase in the surcharge was undoubtedly the lesser of two evils and much more favourable to landlords and the industry that services them.
Which leads me to the finance situation. Affordability has been a significant barrier for landlord borrowers over the last couple of years, essentially since the ‘Mini Budget’. I’ve always been of the belief that get rates to around the 5% mark and affordability becomes far less of an issue, landlords can finance/refinance, and we have a much more active space.
Currently, and this is just Fleet, we have a significant number of two-year products well below 5%, and we also have five-year deals only just above 5%. In other words, we have pretty much met my own level for what tends to precipitate greater levels of business, and I think we, and you as advisers, are likely to see more of this as we enter 2025.
Plus, the fundamentals are all increasing favourable, certainly in terms of house prices moving upwards, tenant demand remaining strong, mortgage pricing coming down, and crucially, landlords wanting to stay invested/add to portfolios. It all points to a much more positive future trading period than some would have us believe.
Let’s not lose sight of that, or the client need, and advisers who remain on top of this sector and market themselves effectively, are likely to see a continued and steady stream of landlord borrower advice business in the months to come.
