Emile Salame: The UK Buy-to-Let Market

Having worked in investment banking in the City of London’s top tier financial institutions, Emile Salame launched his own business, founding Cornerstone Asset Advisors. Today, he heads a leading London real estate investment advice company that specialises in providing an array of innovative services to support clients in selecting and managing real estate investments across the UK capital. This article will look at the UK buy-to-let (BTL) market, a popular real estate investment avenue that enables investors to not only create a steady income stream but, in healthy real estate markets, benefit from asset appreciation.

Having enjoyed something of a heyday until relatively recently, the UK’s BTL market enables investors to benefit from both rental income and capital growth if the value of their property rises over time. However, the current economic downturn has caused significant challenges for BTL landlords, with increasing costs and interest rate rises combined with a less favourable tax regime.

One key question for BTL landlords in the current economic climate is whether they should fix or risk a tracker mortgage. According to UK Finance, almost two million BTL properties in the UK have a mortgage attached. The average two-year BTL mortgage interest rate is currently 5.39%, while the average five-year fix is 5.56%, data from Moneyfacts reveals. Although the lowest two-year fixed mortgage rate is just 2.59% and the lowest five-year is 3.49%, both deals come with hefty fines attached.

Louis Mason serves as communications for Oportfolio mortgage advisors. He cites the biggest challenges currently faced by the BTL market as ongoing changes in legislation relating to tax liability, stricter energy performance certificate requirements and potential rent control measures. Mr Mason points out that inflation and rising interest rates are making it increasingly difficult for landlords to make a living, highlighting the need to reassess their financial goals. Although increasing tax burdens and other undesirable elements that attach to owning rental property are driving many landlords to reconsider their BTL investment, Mr Mason says that his company’s landlord clients are currently robust, nonetheless.

David Hollingworth, associate director of communications for L&C Mortgages, suggests that higher interest rates are placing pressure on landlords through higher monthly payments. Concurrently, he points out, it has also become harder to meet lender criteria. BTL investors have also faced regulatory changes, as well as the introduction of the 3% stamp duty surcharge imposed on second house purchasers. However, as mortgage rates reduce and demand continues to build, Mr Hollingworth predicts that property prices could increase by a further 10% in 2025, providing a welcome boost in asset value.

When considering taking a new mortgage, BTL landlords need to think long and hard, seeking out the best deals available. Many landlords with a mortgaged BTL property risk their profits being ebbed away by interest rate increases, having been lulled into a false sense of security by the flood of ultra-cheap finance available to them in recent years. In addition to regulatory pressures and interest rate increases, BTL landlords are also struggling with rises in ancillary costs, such as repairs, maintenance and the cost of periods when the property stands empty. However, it is possible to mitigate some of these costs by taking out insurance against loss of rental income, legal costs and damage.

Admittedly, the BTL market has faced regulatory and economic challenges of late, with an almost 50% fall in BTL house purchase lending in 2023, UK Finance data reveals. One of the primary driving forces behind the contraction were interest rate rises, making it hard for prospective BTL property purchasers to pass the increasingly stringent affordability tests of lenders. Nevertheless, the BTL model remains an integral component of the UK property market, with the London rental market in particular back in favour as the rental market stabilises. Despite reports of its decline, in reality there are still significant opportunities for BTL investors, provided they are willing to put in the research and conduct scrupulous financial planning.