"Landlords are taking fewer risks with their borrowing, which makes sense given how the market has become objectively less attractive in the past couple of years"
- Jonathan Samuels - Octane Capital
Specialist property lending experts, Octane Capital, compared the total amount of borrowing amongst buy-to-let landlords between Q3 2022 and Q2 2023 and the corresponding period the year before, finding that buy-to-let landlords reduced their borrowing by around £7bn over that period, from £37.9bn in 2021-2022 to £30.4bn in 2022-2023.
In terms of a percentage change, this means that buy-to-let landlords collectively reduced their borrowing by -19.8% in just a single year.
A period in flux
It’s no wonder that landlords have looked to reduce their exposure to the mortgage market, given how the Bank of England base rate has shifted over that period. At the start of December 2021, the base rate stood at 0.1%, while by June 2023 it reached 5.0%.
Other unusual events also rocked the markets.
In February 2022 Russia would launch its invasion into Ukraine, creating an inflationary effect on the cost of energy, which would filter through to other sectors.
September 2022 saw ex-Prime Minister Liz Truss’s ill-fated mini-budget, where a selection of uncosted tax cuts served to spook the financial markets, causing mortgage interest rates to surge almost overnight.
It’s no wonder that investors have looked to restrain their borrowing in this context.
The rest of the market followed a similar trend to buy-to-let, as lending to first-time buyers dropped from £68.1 billion in 2021-2022 to £65.9 billion in 2022-23, a reduction of -3.2%.
Meanwhile, all other forms of lending fell by -7.6%, from £92.2 billion to £85.2 billion.
Remortgage activity rose slightly, from £79.9 billion in 2021-2022 to £81.0 billion in 2022-2023, reflecting how more borrowers consolidated what they had rather than saddling themselves with fresh debt in the form of a new mortgage.
CEO of Octane Capital, Jonathan Samuels, commented: “Landlords are taking fewer risks with their borrowing, which makes sense given how the market has become objectively less attractive in the past couple of years.
“No longer are buy-to-let mortgages available for 2-3%, so it’s less economically viable to invest in property on a highly leveraged basis.
“Now landlords are in a period where they’re adjusting to a new normal, where they need to be strategic and consider using a larger deposit if they want to continue growing their portfolios.”