Buy-to-let investors are swooping to snap up property bargains as buyer demand disappears amid the housing market downturn.
Between January and November, the share of offers made by buy-to-let investors on properties that had no other bids more than doubled from 14pc to 37pc, analysis by Hamptons estate agents found.This was the highest proportion on record in at least four years and was far above the 20pc pre-pandemic benchmark in November 2019.
The landlord buyer share has now hit its highest level since the Government introduced a 3%-point stamp duty surcharge in 2016.
In the year to date, buy-to-let investors made up 12.2% of sales, up from a low of 10.6% in 2020.
So far, this share has grown because landlords are filling a void as high mortgage rates have locked first-time buyers and homemovers out of the market – rather than because more investors are buying. Fewer sales overall mean the absolute number of investor purchases in 2022 will be down by around 30,000 compared to last year.
But house price falls and rising rents are starting to tempt more investors back. The number of buy-to-let investors registering with agents was up by 9% year-on-year despite an overall fall in buyer demand.
Aneisha Beveridge, of Hamptons, said: “Rising rents are tempting landlords to dip a toe back into the slowing sales market to try and pick up deals they couldn’t have got six months ago.”
In April this year, nearly half 48% of investors were buying homes at above their asking price. In November, that share had plunged to 25%. Landlords are negotiating much harder than owner occupiers. Nearly a third (30%) of first-time buyers paid over asking price.
High mortgage rates have hammered buy-to-let profit margins, but if investors can purchase mortgage-free, they benefit from high rents. “With sellers more open to negotiation and rents rising rapidly, returns for equity-rich landlords have been rising,” Ms Beveridge said.
Landlords are targeting high rental yields instead of investing for capital growth in preparation for house price falls. So far this year, 56% of new investor purchases were in places with average gross yields of 6% and above. A decade ago, this share was only 40%.
Of the homes sold by investors, 85% were generating yields of less than 6%.
Nationally, rents on newly-let properties jumped by 7.9% in November. In Scotland, they soared by 12.3%, the fastest rate of any region in Britain. This was also the highest level in Scotland since the Hamptons lettings index was launched in 2012.
A rent freeze was introduced for existing lets in Scotland in September, but this does not apply to newly let properties and means that landlords are more likely to make bigger increases when tenants leave.
Hartlepool in the Northeast had the highest gross rental yields in the country in November at 9.9%. All of the highest yielding locations were in Wales or the North of England.
More Investor-Owned Stock on the Market Than at any Time Since 2019
Auction House, the UK’s largest property auctioneer, says it is witnessing more investor-owned stock going under the hammer than at any time in the last three years. Auction House Managing Director Jeremy Prior said: “There’s no escaping the fact that there are some incredibly challenging conditions out there. As a result, many investors are looking at their portfolios and reviewing the situation, and investors of all types recognise that if they need to adjust their stock the speediest and most certain way to do so is via auction – which is why they come to us!”
The group’s comments come hot on the heels of the release of its latest figures, which indicate a 10% increase in the number of properties sold compared to this stage in 2021. To the end of November, Auction House has offered 4,409 lots at auction and sold 3,519 (compared to 3,188 last year) – with a success rate of 80% and raising a total of over £550m (£553,004,712).
Jeremy Prior added: “Despite the reduction in buyer demand, Auction House seems to be bucking the trend – not only with the 10% rise in sales year on year, but also in maintaining our success rate at around the 80% mark. So, while some companies are failing to sell even half of the properties they list, we continue to successfully sell four out of every five properties we offer, despite the more challenging market conditions.”
Regardless of the gloomy macro environment, Jeremy Prior says that the Auction House regional framework will allow the group to continue to out-perform its rivals. He said: “The crucial difference with Auction House is that we are a national brand – with all the subsequent marketing muscle – but we operate regionally. We have over 40 offices throughout the UK, staffed by experienced and knowledgeable teams, all of whom live and work within their areas of operation, and consequently have their fingers on the pulse of their respective local markets.
“Consequently, they can provide realistic, sensible, pragmatic advice to prospective sellers as to how they can not only enhance their chances of a sale but also squeeze the maximum value out of their property – an ability which other national auctioneers simply don’t have.”
Property Market Suffers Biggest Slip in Four Years As Average Asking Prices Fall Almost £8,000 In December, Says Rightmove.
Property asking prices fell by almost £8,000 on average over the last month, according to Rightmove, as home sellers 'adjusted their expectations' in a cooling market. The slip up triggered by the mortgage crunch was the biggest for house prices on its index for four years. The property portal reported a 2.1% month-on-month fall, with asking price of the typical newly-listed home falling by £7,862. It followed a 1.1% fall the previous month. However, Rightmove said asking prices grew by 5.6% over 2022 as a whole, fuelled by large increases in the early part of the year. This was compared to 6.3% growth in 2021.
The asking price of the average home for sale is now £359,137 compared to £366,999 last month. Regionally, the Southwest of England saw the steepest asking price falls in the last month at 3.4%, although prices had risen 6.3% in the last year. Rightmove forecasts that prices will drop by an overall average of 2% in 2023. This prediction is one of the most optimistic yet, with others anticipating much larger falls. The Government's Office for Budget Responsibility recently predicted a 9% house prices drop by the end of 2024, while estate agent Savills forecast a fall 10% next year. The most extreme forecasts predict falls of up to 30%. Rightmove said the property market would become 'multi-speed' and 'hyper-local,' with some locations, property types and sectors faring much better than others.
Rightmove said that, while house prices often fall in December as buyers drop asking prices to try and encourage sales ahead of Christmas, this monthly dip was the largest it had seen in four years. It blamed rising mortgage rates, which spiked in the weeks following the mini-Budget and remain much higher than a year ago at an average of just under 6%. Rightmove did say, however, that as mortgage rates slowly began to fall, demand from buyers was improving and that over the past two weeks it had been 4% up on the pre-Covid market of 2019.
It predicted that the housing market would settle into a more 'normal' pre-pandemic level of activity as 2023 progressed. Tim Bannister, Rightmove's director of property science, said: 'It's an understandable short-term reaction to the economic turmoil and unexpectedly rapid mortgage rate rises and reduction in availability of mortgage products that we saw in late September and October, before things began to settle down.'
The number of views of homes for sale on Rightmove is currently up 11 per cent on the same time last year. The property portal said this indicated that there were many 'ready-to-go buyers' who were waiting for a calmer market in 2023 to make their move following an uncertain last few months of the year. Bannister added: 'It's understandable that some buyers are distracted, not only by the festive season, but also by the thought that they may get a better fixed-rate mortgage deal and a more stable outlook by waiting until the new year. 'We'd usually see a jump in home-mover activity in January, but it takes a while at the start of the year for any significant price changes to feed through, so we'll be waiting for a potential bounce back in prices in February, which will be a very important leading indicator for the spring moving season.'
Buyers could be in a stronger position next year, after the power remained firmly in sellers' hands during the pandemic property rush when there were many more buyers than homes for sale. Rightmove said there could be a 'stand-off' in the early months of 2023 between some sellers who are in no rush to drop their prices, and those affordability-strapped or hesitant buyers. This, it said, could mean homes would take longer to sell.
Rightmove's data also looked at how affordable it was for first-time buyers to get on the property ladder. It found that the typical monthly mortgage payment for a first-time buyer home was now around £1,300, having spiked in the last year. It is now far outpacing rent at around £900 due to recent rises in mortgage rates. Speaking about wider market trends, Guy Gittins, chief executive at estate agent Foxtons, said: 'We started the year still riding the wave of momentum from peoples' changing requirements following Covid. 'As interest rates started to increase the market in London paused to catch its breath, and in the weeks that followed, we saw buyer demand fall sharply. 'However, there seemed to be a strong number of buyers who had factored higher rates into their budget and were still determined to transact.'