For a huge number of landlords, the UK buy-to-let sector remains an extremely lucrative place to invest, with soaring tenant demand and record-high yields.
Over recent years, much has been made of the idea that landlords are selling up due to factors such as changing tax rules, including the removal of Section 24 mortgage interest tax relief in 2020, as well as capital gains tax changes; and this has ramped up more recently as mortgage rates have risen.
But while these changes have certainly had an impact on some landlords, investing in UK bricks and mortar remains not only popular but extremely profitable for many investors.
Long-term, UK house prices have seen some of the strongest growth in the world, leading to large gains for many owners. The parts of the country experiencing the greatest capital appreciation have changed over the past couple of decades, with the north of England largely overtaking London in this arena in recent years.
At the same time, for those operating in the buy-to-let sector, rental demand has been pushed to record highs in recent years, far outpacing the number of rental homes available in some areas, and this has coincided with rental yields hitting their highest figures to date.
Further to this, statistically, many existing buy-to-let landlords of the past couple of decades are approaching or have reached retirement, meaning that many people’s investments have naturally reached the point where they will be sold to supplement the owner’s pension. This has contributed towards the increase in the number of investment properties going up for sale.
This is something Allison Thompson, the national lettings managing director of the Leaders Romans Group, has addressed recently: “While it’s true that some have decided to stop being landlords, the reality is that a lot of rental properties come to the sales market simply because landlords have reached the end of their planned investment journey.
“They’re around retirement age, have made good money from property over the years and now want to realise their equity gains. Many of these are snapped up by other landlords – often professionals who are continuing to grow their portfolios – and the proportion of households renting in the private rental sector has been holding steady for the last decade.”
Fall in landlords selling tenanted properties
New research looking at the number of properties being sold with tenants in situ, conducted by Lomond, has revealed a somewhat different picture to the ‘landlord exodus’ that has been discussed recently.
Its figures show that, in September, 10,041 tenanted properties were listed for sale in September this year in the UK, which around a fifth (19.2%) lower than figures from June, when 12,423 existing rental homes were listed.
As Lomond points out, this downward trend goes “directly against the narrative from those who fear the bill will result in fuelling a mass exodus of landlords from the buy-to-let (BTL) sector”.
This is despite the fact that some landlords have reportedly been perturbed by rumours and uncertainty since Labour took over at 10 Downing Street in July, bringing with it a renewed Renters Rights Bill that could come into law next year. Although the Bill’s primary aim is to protect tenants, many in the industry argue that, for ‘good’ landlords, there is nothing to fear from the changes set to come in.
Lomond chief executive officer Ed Phillips said: “Much has been made about the exodus of landlords from the BTL sector and with Labour quick out of the gates to propose yet more pro-tenant legislative changes, there had been worries that more landlords would have made a swift exit.”
“But, since the relaunch of the Renters’ Rights Bill under our new Labour government in late May, we’re yet to see any evidence of this and, in fact, the number of homes listed across the market for sale with a tenant in situ has actually fallen.”
“However, the real test will be the impending Autumn Budget at the end of this month, as we could yet see more changes that impact the financial returns of BTL investors, with Capital Gains Tax looking the most likely shake up on the cards.”
No sudden exodus
Separate research published by Rightmove supports the notion that there is no sudden exodus of landlords from the buy-to-let market, with the number of homes currently for sale that were previously rented out being only slightly higher than the five-year average.
According to Rightmove, one in five (18%) of properties currently listed were previously in the rental market, while the five-year average is 14%.
There is also a wide gap between various parts of the country, with landlords in London being much more likely to be selling at the moment than elsewhere. In the capital, almost a third (29%) of all homes for sale have been rented out, says Rightmove, whereas in parts of the north this is considerably lower.
Property expert Tim Bannister says: “Despite the trend of more landlords choosing to sell up, the average number of rental homes being put on the market for sale over the last five years is 14%, so it doesn’t appear to be a mass exodus.
“We will need to monitor the longer-term impacts of what happens to the rental supply that is put up for sale. For example, these homes could provide first-time buyers with more choice.
“They might also be purchased by other landlords and put back into the rental market, which would signal a changing of the guard rather than a complete exit from landlords. In any case, we hope the government is considering ways it can support landlords and the private rented sector ahead of the Autumn Statement.”
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