The positives for landlords in a post-autumn budget market

The learning objectives for this article are to:

We’re mere days away from the autumn budget and everyone is nervous. Which is understandable, given what we know. Keir Starmer himself has warned the budget will be painful, while Rachel Reeves confirmed taxes will have to rise. 
It won’t be long until we know for sure how this will take shape. Although, we have a pretty good idea of what may be coming. 

In plugging an apparently surprise £22bn fiscal black hole, the Chancellor may have no choice but to target pensions, ISA allowances, private school fees, and more. For property investors, changes to CGT, IHT, stamp duty, and non-dom tax rules will likely force a rethink.  

The mere idea of what’s on the way has already forced many landlords to take drastic action. While noting the idea of a full-on exodus is overblown, Rightmove recently confirmed the proportion of former rental properties moving into the sales market is at its highest on record. 

Around 18% of properties now available for sale were previously on the rental market. In 2010, it was 8%. Some (but not all) landlords are trying to exit the market. 

But, as always, opportunity can emerge from this. Escaping landlords need to sell to someone, and expanding buyers can take advantage. There are even a few key hotspots to target. 

London, unsurprisingly, is seeing the highest number of sellers. In our expensive capital, nearly a third (29%) of homes for sale were previously for rent. Just behind this sat Scotland (19%), and the North East (19%). 

Some may assume that these local markets have little to offer buyers, given existing landlords want out. But the actual data out there shows that they offer plenty to entrepreneurial buy-to-let investors. 

There’s still life in London 

The London buy-to-let market, while slowing recently, is still dealing with a supply and demand imbalance. High demand, coupled with relatively low supply, is keeping rents high. According to Zoopla, the number of homes available for rent is rising, but there are still 25% less rental properties available in 2024 compared to 2019. 

Also, while London and other major cities have been hit by unique economic shifts recently – the pandemic, the 2022 mini-budget, etc – there are signs that relative normality is returning. Savills, analysing the prime central London rental market, found that longer-term drivers are now having a significant impact, and pre-pandemic seasonal trends are remerging. 

All told, this translates to annual rental growth across prime central London returning to 2% in the year to the end of June. Looking ahead, Savills expects this market to be less exposed to disruption from reform than the wider rental market. 

The biggest challenge landlords are likely come up against in London may also be diminishing. Entry costs are high. This eats into rental yields. But, by being a bit selective, it’s possible to get decent returns from a London purchase. 
For instance, analysis from SBA Property Management found that buy-to-let yields of 5.9% are available in the borough of Tower Hamlets. Southwark (5.59%), Newham (5.23%), Barking & Dagenham (5.06%) and Greenwich (4.96%), also offer decent returns. The London average, for comparison, is 4.81%. 

Shifting sentiment among renters themselves may also push these figures higher. In recent months, people have been flocking back to London from the countryside. Rural living has lost much of its appeal, and demand for the excitement of the city may only rise from here. 

Looking North 

London will always have a lot of focus on it, serving as a barometer for the wider market. That doesn’t mean there aren’t opportunities outside of the South East, however. In fact, Hamptons data showed that the average rent for a newly let home in London jumped 3% year-on-year. But, rents in the North East surged by 10.3% annually. 

Moreover, these rent rises coincide with substantial house price growth. Arguably – the North East offers the best of both worlds. According to the latest Home.co.uk Asking Price Index (HAPI), the North East extended its lead as the regional property market growth leader with a year-on-year gain of 6.5%. 

Obviously, the North East is a big part of the UK. But as exiting landlords leave the market, a few local hotspots are emerging. Hotspots prime for targeting. 

So far in 2024, Middlesborough is the top buy-to-let locale, with 40% of all residential purchases going to landlords, according to Hamptons. Darlington and York (30%) is also drawing landlords in. 

The bottom line 

Governments of all shapes and sizes will always tweak-away. They can make changes to their heart’s content, but there is no getting away from basic supply and demand. There are 15 households chasing every rental home in the UK according to Zoopla. This number may only rise post October 30th. 

Fortunately, despite all the pessimism, there are buy-to-let investors out there who appear to want to take advantage of this. Recent research from Paragon Bank found that 37% of portfolio landlords planned to purchase more properties in 2024. Also, the Q2 2024 TMW BTL Barometer showed that 11% of landlords intend to buy in the coming year or so.

There are also plenty of landlords who plan to refinance over the coming months, rather than sell-up. Around a third of landlords intend to refinance in the next year, which offers substantial opportunities for lenders and brokers. 

The timing for all this may be fortuitous. Buy-to-let mortgage rates are at the lowest levels seen since September 2022. And as the economy improves, lenders are racing to deliver the best options possible for UK landlords. 

At the end of the day, no one knows what’s on the horizon. From the single-unit landlord through to the Chancellor of the Exchequer, all we can do is react as new information comes to light, and the market shifts. As the dust settles next month, we will adapt to whatever emerges on the other side. Hopefully, the good news will filter through.