2023 is shaping up to be a challenging year for UK’s property investors, especially those in the buy-to-let sector. According to figures from UK Finance, a leading trade body, the value of new buy-to-let lending is expected to plummet by a staggering 53%. This forecast highlights a significant shift in investor sentiment, as more and more are steering clear of the housing market.
Why the Sudden Drop?
So, what’s behind this dramatic fall? A key factor is the surge in mortgage costs, making property investments less appealing. In 2023, the value of new buy-to-let purchase lending is likely to dip to just £8 billion. This is a significant reduction from previous years and a clear indicator of the cooling interest in property investment.
Government Policy Impact
The government’s decision to slash mortgage income tax relief, replacing it with a 20% tax credit, has also played a role in deterring landlords. This policy shift means landlords are now taxed on their total income instead of just their profits. With mortgage costs skyrocketing, this change has made property investment far less lucrative and attractive.
A Bleak Forecast for 2024
Unfortunately, the outlook for 2024 doesn’t seem much brighter. UK Finance predicts a further 13% decrease in new buy-to-let purchase lending, bringing the total down to around £7 billion. This continued decline suggests that the challenges faced by the sector aren’t going away anytime soon.
Expert Insights
James Tatch, head of analytics at UK Finance, sheds light on the situation: “2023 was a challenging year for both prospective and existing mortgage borrowers, facing affordability pressures from higher interest rates and the increased cost-of-living, as well as house prices still at elevated levels relative to income.”
He further adds, “With these pressures unlikely to ease significantly in the short term, we expect lending to remain weak in 2024, with a gradual improvement in affordability reflected in a modest increase in activity levels in 2025.”
Rising Arrears and Possessions
It’s not just the buy-to-let market that’s feeling the heat. The overall mortgage lending market is also experiencing turbulence. Arrears cases are expected to rise by 30% this year, reaching 105,600. Meanwhile, property possession cases are predicted to increase by 13%, totaling 4,400. These figures are set to worsen in 2024, with arrears cases projected to hit 128,800 and possessions climbing by 16% to 5,100.
A Silver Lining?
Despite these daunting statistics, Tatch notes a silver lining. The rigorous affordability tests introduced in 2014 are proving effective, helping the majority of borrowers manage their mortgage payments despite financial pressures. While arrears are expected to increase next year, the numbers are likely to remain well below previous peaks.