Introduction
The year 1996 marked the launch of the buy-to-let mortgage, which gave rise to the private rented sector as we know it today. Since then, the ability to purchase an investment property with debt has turbocharged the sector’s growth.
Between 2000 and 2022, the number of privately rented homes in England more than doubled (+119%) to 4.6m. Yet low interest rates and better mortgage availability meant the number of outstanding buy-to-let mortgages rose more than ten-fold (+1,602%) over the same period. The latest English Private Landlord Survey suggests 66% of existing landlords are now reliant on a mortgage – and this debt boom helps explain why rising interest rates have such an impact on the market.
Investors have had to weather several tax and regulatory changes over the years and, since 2017, the number of homes sold by landlords has outpaced new purchases. However, 2023 presents a very different challenge for investors as they transition towards a new era of higher interest rates.
So far, there have been few signs that the sell-off has gained traction since mortgage rates peaked in the wake of the mini-Budget in September 2022. However, with rumours of a wave of buy-to-let landlords exiting the market this year, we reveal the investors who are most at risk of falling into negative profits as interest rates rise. And you might be surprised by how small that figure is.
It’s far from game over for landlords, but higher interest rates have fundamentally re-written the rules for buy-to-let. In this report, we explore how investors, both new and existing, can make buy-to-let work in today’s economic environment. And, more importantly, we assess the potential risks and opportunities ahead for the private rented sector in the long term.
