A prominent international rating agency has presented its assessment of the future prospects for investors in the UK buy-to-let market, and the analysis does not paint an optimistic picture.
The Kroll Bond Rating Agency (KBRA), a renowned global rating service that provides guidance to investors, has recently released a comprehensive report delving into the regulatory and financial hurdles confronting individuals investing in the UK buy-to-let sector. These challenges arise amidst a backdrop of economic difficulties, including escalating interest rates, sluggish house price growth, and mounting living expenses that directly impact tenants.
The report acknowledges the arduous terrain landlords face, particularly those seeking to refinance their properties in this new economic climate. Moreover, regulatory bodies have modified policies in an attempt to enforce higher standards for buy-to-let mortgage origination, necessitating energy efficiency upgrades for older properties.
The report highlights several key findings:
- The buy-to-let (BTL) sector is expected to experience a deceleration in growth and potentially even a contraction. This can be attributed to a combination of factors, including increased financing costs, reduced tax advantages, evolving regulations, and challenges posed by tenants with lower income levels.
- Loans nearing the end of their fixed rate period face a heightened risk when it comes to remortgaging.
- KBRA conducted a thorough analysis of nearly 20,000 BTL loans and determined that approximately 20.3% of them carry an increased remortgage risk due to relatively low debt service coverage ratios or high loan-to-value (LTV) ratios.
- Among the subset of BTL mortgages nearing the end of their fixed rate period, there is a significant level of exposure in the London market.
- However, the risk associated with remortgaging is partially mitigated by landlords’ ability to raise rents, the advantages of diversification for portfolio landlords, and the comparatively lower leverage among borrowers in the BTL sector.
- The BTL sector is confronted with additional impending risks, such as potential changes to tenancy rights, taxation policies, and energy-efficiency regulations, further clouding its future outlook.
Click here for the full report