For a number of years now, we have become accustomed to surveys telling us a certain proportion of landlords intend to sell properties, reduce their portfolios or leave the private rental sector (PRS) altogether, and those findings have inevitably contributed to a wider narrative about the direction of buy-to-let.
There is clearly no point ignoring those intentions, particularly when landlords continue to face significant tax, regulatory and cost pressures, but I do think we need to distinguish between what landlords say they might do and what they subsequently do, because the latest evidence suggests the two do not always point in precisely the same direction.
Last month, I wrote in these pages about the buy-to-let refinancing market already taking shape, referencing UK Finance figures which showed remortgage volumes rising by 11.1% year-on-year in Q1 to 39,160, while their value increased by 15.3% to £7.5bn.
At the same time, 72,000 product transfers were completed during the quarter, up 25.8%, with their value rising by 34.3% to £12.3bn, providing a fairly clear indication that large numbers of landlords were actively making financing decisions about their portfolios. Since then, the latest FCA lending figures have provided another useful measure of what landlords are actually doing, and again I think they warrant a closer look.
Look beyond the market share
The headline figure is that buy-to-let accounted for 8% of gross mortgage advances during Q2, down from 8.9% in Q1 and 9.2% in Q2 last year, which on the face of it might appear to suggest a market moving backwards.
However, total gross mortgage advances increased significantly to £77.4bn during the quarter, compared with £69.6bn in Q1 and £58.8bn a year earlier, which changes the interpretation of that 8% considerably.
Using the FCA's published totals and buy-to-let percentages, that suggests approximately £6.2bn was advanced for buy-to-let purposes during Q2, almost identical to the amount implied by the Q1 figures and around 14% higher than the £5.4bn suggested by the equivalent figures a year earlier.
These calculations illustrate an important point, because buy-to-let share dipping slightly does not mean an actual fall in lending volumes. Indeed, the figures suggest precisely the opposite has happened compared with a year ago.
What are landlords actually doing?
That distinction becomes particularly relevant when we consider some of the other data emerging from the PRS, because there remains a tendency to treat a landlord selling a property as equivalent to a landlord leaving buy-to-let altogether.
For professional landlords in particular, portfolio management is rarely that simple, because an investor might sell a property which is no longer producing the required return, refinance others, retain the majority of their existing assets and subsequently purchase somewhere else where the numbers work more effectively.
Recent Hamptons data, for example, suggested landlords accounted for 14.1% of all property purchases in Great Britain during July, while separate research from Benham & Reeves found 62.7% of landlords planned to maintain their existing portfolio over the next year and 50.6% continued to regard residential property as a good long-term investment.
That same research also found 14.2% planned to leave the sector and 13% intended to reduce their portfolios, and those findings should not be dismissed, but nor should an intention expressed in a survey automatically be treated as a completed future transaction. Circumstances change, financing changes, rents change and opportunities change, and the investment decision a landlord expects to make today may not necessarily be the one they ultimately make six or 12 months from now.
The underlying conditions matter
There are also some encouraging signs within the wider rental market which help provide further context for those decisions. The latest ONS data showed average UK private rents rising by 3.7% in the year to July, accelerating from 3.3% in June, while house price inflation was running at a slower 2% in the year to June.
That combination does not suddenly make every buy-to-let investment viable, because mortgage costs, taxation, maintenance, regulation and a range of other expenses all have to be considered, but stronger rental growth alongside slower house price growth can clearly have an impact on potential yields.
At the same time, Pegasus Insight's Q2 Landlord Trends research found 63% of landlords describing tenant demand in their area as very or quite strong, up from 58% in Q1 and representing the first quarterly increase in that measure since Q1 2024.
Again, none of this means we should conclude buy-to-let has suddenly returned to a period of strong expansion, because the pressures facing landlords are real and the forthcoming Budget could add further considerations to an already lengthy list.
Actions provide the fuller view
What it does suggest however is that we need to be careful about reaching broad conclusions on the future of the sector based principally on what landlords say they intend to do.
Last month's refinancing figures showed significant numbers of landlords making active decisions about existing borrowing, the latest FCA data suggests the value of buy-to-let advances remains substantial and higher than a year ago, while landlords continue to purchase property and tenant demand remains strong.
Some landlords will sell, some will reduce their portfolios and some will leave completely, just as others will refinance, hold or buy, and that mixture of activity is exactly what we should expect from a mature investment market containing landlords with very different portfolios, objectives and circumstances.
Landlord sentiment remains an important measure of confidence and should certainly be listened to, particularly by policy-makers considering further changes which might affect investment decisions, but it is only one part of the story. If we want to understand what is really happening in buy-to-let, then what landlords actually do with their properties, their borrowing and their capital may ultimately tell us rather more than what they say they might do.
