Is now a good time to be a buy-to-let investor?

The buy-to-let market is in a real mess at the moment with high rates and impossible stress test calculations massively limiting the amount landlords can borrow.

Up until the catastrophic mini-Budget, we were speaking to many clients who were toying with the idea of becoming a landlord. There were many that had gone away to look for suitable properties, and on returning to us to discuss their findings, they are quite literally in a state of shock and disbelief. Quite frankly, the current expected rental incomes that properties can achieve is just way short of where it needs to be. Lenders have not only increased their interest rates, but they have also increased the stress test, namely the rate at which the required level of rental income required is calculated. In most cases the numbers just don't stack up. We are suggesting that new landlords wait for now, unless it looks like the numbers work, and then we are checking this for them. Existing landlords who are modestly encumbered, are currently okay, may not need to do anything with their rents, but those who are quite heavily geared are going to be in for a shock. They are either going to have to sharply increase rents or exit the market completely. Unless the mini-Budget is reversed and interest rates ease, I fear that we are going to see a drastic and devastating impact on the rental market. Those that will suffer the worst form this will, as ever, be the tenants.

A Buy-to-let property needs to be run as a business. There is no such thing as a good or a bad time, the market is what it is and you just have to roll with it. As with any business, if your outgoings increase then your prices increase. If you are getting a BTL mortgage at 6% or 7% then that cost needs to be reflected in your rent, if you aren't willing to charge that then you should never have been a BTL investor in the first place. I was able to obtain a client a 5-year fixed rate at 3.48% yesterday so there are still some decent rates on the market.

Changes in the buy-to-let mortgage market will leave landlords with little choice but to increase the rents they charge or sell up in order to refinance. Increased rental costs will take more money out of the pocket of the average person in the street as they struggle to pay their energy bills and put food on the table. There is no easy solution. Landlords are running a business and when costs go up so must their prices. However, the system could not handle rent increasing at the speed at which interest rates have, or we will have a lot more homeless people. We predict market intervention to ease the criteria making it hard for landlords to refinance.

You’d have to be crazy to invest in the UK housing market right now. The past ten years have seen an assault on buy-to-let investors from the stamp duty surcharge to the reduction in interest that can be offset. Now, with a recession around the corner, stagflation locked in and a government that doesn’t know what colour pants to put on, investing in an asset class that is sure to retreat would be unwise to say the least. We do still have a mega shortage of property on our island, so long term it might seem sensible, but these should be aimed at the low income buyers. Savills and Knight Frank predict the London market may see declines of 10% next year. Personally, I would hold on to my money and re-evaluate at the end of next summer.