Much like 2023, the 12 months ahead look set to be a mixed bag for landlords, with a more stable financial outlook on the cards and a continuation of the rising rents of recent months.

Higher Mortgage Rates have been one of the biggest concerns for homeowners and buy-to-let landlords alike over the past couple of years, with many households and investors coming off sub-2% rates and finding new products averaging 6%.

Cash owners and buyers have been the biggest winners of this scenario, as well as those with lower levels of leverage, but it has had an impact on house prices and transaction levels as affordability has taken a hit. Mortgage rates have climbed in response to the Bank of England increasing its base rate to a 14-year high of 5.25%.

Predictions for interest rates

Expectations for 2024 are varied – and subject to ongoing change as the wider economic outlook shifts – but most experts predict that the Bank of England will begin to lower interest rates over the coming months. Thankfully, mortgage rates have already been falling since autumn, and product numbers have been on the rise.

David Hollingworth, associate director at London & Country Mortgages, said: “Many experts are anticipating Bank Rate will hold firm until later in 2024 and the Bank of England has consistently stated that it will do whatever is required to bring inflation back down to its target, which is still considerably lower than where things stand today.

“Mortgage rates, on the other hand, are already on the move and fixed rates have been falling after the rapid spike in the summer. Many of the lowest five-year fixed rates are now well below 4.50% and two-year below 5%.

“Both are still being nibbled away so we could see more nudging toward 4.25% and 4.75% respectively as we head into the New Year.”

Although many in the property market had hoped that interest rates would fall more quickly, the fact that they are widely expected to come down over the coming year will boost buyer confidence and borrowing ability.

Rising rents can counteract mortgage rates

Although mortgaged landlords have found their borrowing costs climbing – or are set to if they are due to remortgage in the coming year – Rising Rents have gone some way to counteracting this and boosting rental yields.

A combination of a shortage of rental properties and heightened tenant demand due to more people remaining in rental homes for longer is behind the rising rents the sector has experienced. According to Homelet, rental prices on newly agreed tenancies have gone up by more than 20% in two years across the UK.

Honing in on some areas, the likes of Manchester and Birmingham have seen almost the rate of rising rents, driven partly by growth in the number of people seeking cities outside of London. Rising rents in these locations have driven up yields even further for landlords operating there.

Letting agents in some regions are reporting more than 50 tenant enquiries per rental property, while Rightmove notes that the number of prospective tenants per property has more than tripled between 2019 and 2023, from six to 20.

As Rob Dix, co-founder of Property Hub, pointed out, rising rents over the past couple of years has “gone some way to offsetting the impact of higher mortgage rates”.

“Landlords should make sure they’re charging the market rate at the next opportunity for renewal,” he said.

“There’s not much that can be done to reduce costs, but the good news is mortgage rates do appear to be coming down somewhat – so for anyone renewing in 2024, the position might not be as bad as they expect.”

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