The majority (73%) of landlord sales in 2022 were made by those reaching retirement, with many being early adopters of the first buy-to-let mortgages which launched in 1996, Hamptons research shows.
Older landlords are 'retiring' in their droves... and younger buy-to-let investors won't replace them due to higher tax and mortgage rates
Ageing buy-to-let landlords are selling up in their droves, according to new analysis, with new investors failing to fill the void left behind. Around 140,000 landlords 'retired' from the business last year, according to the estate agency Hamptons, accounting for almost three quarters of all property sales by buy-to-let investors. It says this figure is likely to continue rising over the coming years, with around 96,000 landlords turning 65 each year across the UK.
Proportion of landlords by age: Just 15% of buy-to-let investors are under the age of 45 (figures are weighted by the number of tenancies they have)
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The latest Government survey of landlords puts the age of the average buy-to-let investor at 59, with just 15% under the age of 45. It's predominantly these older investors who are leaving the market, according to Hamptons, many of which were early adopters of the first buy-to-let mortgages which were launched in 1996.
This means many purchases were made by these landlords 15 to 25 years ago, and still make up the majority of privately rented homes in the UK. Hamptons estimates that just over half of today's outstanding buy-to-let mortgages were taken out between 1996 and 2007. It is this cohort of ageing investors who bought when the sector was growing rapidly that are now increasingly likely to sell up and cash out.
Veterans: 45% of homes sold by landlords so far this year were bought at least 15 years ago, a figure which has risen in each year since 2018 when it stood at just 33%
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In fact, almost half of homes sold by landlords so far in 2023 were bought at least 15 years ago, a figure which has risen in each year since 2018 when it stood at just one third. This proportion is likely to continue rising as more landlords reach retirement having bought their buy-to-let a couple of decades ago, leaving behind a gap which is not being filled by new landlords entering the sector.
This is because today's new landlords aren't likely to make as much of a profit as their predecessors. On top of a wave of unfavourable tax and regulation that has hit hit the sector since 2016, higher mortgage rates are now also dragging down landlords' profit margins.
Newer investors who need to borrow in order to fund their purchases are facing high mortgage costs. The average two-year fixed mortgage for a landlord has risen from 3% to 5.62% over the past two years. On a £200,000 interest-only mortgage, that's the difference between paying £500 a month and £937 a month.
Add that to a 3% stamp duty surcharge when buying a second property, not being able to fully offset mortgage interest payments against income tax on rent and higher capital gains tax bills, and there isn't much appeal for many at present. Aneisha Beveridge, head of research at Hamptons, said, "two decades on from the birth of buy-to-let mortgages in the late 1990s, early investors are starting to sell up. This means that demographics alone will push up the number of landlord sales over the next five years to reach a new peak. This was likely to happen irrespective of the tax or regulatory changes introduced since 2016, and the more recent higher interest rate environment. But while the tax and regulatory changes haven't driven a buy-to-let sell off, they have stemmed the next generation of landlords. The number of new purchases by landlords has remained relatively muted. Millennials, who have struggled to get onto the housing ladder, have not been in a position to afford or consider purchasing a buy-to-let too.'
Millions facing huge hikes THIS year as landlords forced out property market - 'Exodus!'
ESTIMATES that half a million landlords are set to sell up have been massively underestimated, an expert has warned. Jonathan Rolande said the real figure is likely to be far higher - and warned the situation is going to massively drive rents up further.
Mr Rolande said, “there are currently around seven million privately rented homes in the UK. It is being forecast that around 100,000 will quit the market every year between now and 2028. But I fear this may well be an underestimate. A larger number will be long gone by then.”
Pinpointing some of the main reasons why he continued: “One factor is rent. They are currently rising at potentially unsustainable levels. Secondly, EPC changes, that may require expensive works to reduce emissions, are leading to many exiting the sector as well. Tax changes, particularly for portfolios held in a Limited Company, are also a factor, as is the growing adverse public opinion about landlords. Increasing maintenance and repair costs due to inflation, as well as the removal of Section 21 are factors too. I believe higher interest rates, which make mortgages look expensive and savings more attractive, is driving the exodus as well.
The impact of such a large number of landlords leaving would be “far reaching, many tenants currently happily living in their home will be forced to move out, even if, in the end, another landlord buys it. Rental homes, despite all of the negative press, provide valuable, temporary accommodation for millions of people who don’t want the long-term commitment of owning. Many younger people enjoy the flexibility or letting and can move from job to job and city to city with relative ease. Once hundreds of thousands of homes disappear to the owner-occupier market, choice will be more limited and rents will almost certainly rise. The impact is far reaching and, as is usually the case, the people who suffer the most from this will be the poorest, those already with the fewest choices. Perhaps the only reason to be optimistic is that the government may finally decide to use some of the windfall of Capital Gains Tax from these sales to put in the measures that will help everybody have access to an affordable and safe home."
Sadiq and Gen Rent demand putting the boot into private landlords
The Mayor of London, Sadiq Khan, and Generation Rent have smeared private landlords in a demand for an immediate Government crackdown on those who provide homes for tenants on housing benefit.
Mr Khan says, "it is ‘a scandal’ that billions of pounds is being paid in rent to private landlords who he alleges are letting cold, dangerous or dilapidated properties across England. More than a billion pounds is being used from housing benefit to ‘line the pockets of private landlords."
And he is calling once again for the power to freeze rents in the capital to help prevent bad landlords who, he claims, are profiteering from letting poor quality homes. Generation Rent is also calling for action, and it says that ‘private landlords provide worse accommodation than social landlords’.
Private landlords are profiting from letting sub-standard housing
Mr Khan said,: “it is a scandal that some private landlords are profiting from letting sub-standard housing that is unfit for 21st century living. Renters would feel more secure raising complaints about the condition of their property if they didn’t face the threat of arbitrary eviction, which is why I have long called for Section 21 ‘no fault’ evictions to be abolished. The Government should also give me the power to drive up standards and introduce a rent freeze in London to help people during this cost-of-living crisis.”
Private landlords provide worse accommodation than social landlords
Dan Wilson Craw, the acting director of Generation Rent, said, “it is an outrage that not only can private landlords provide worse accommodation than social landlords, but they get paid more for it. Increasing reliance on the private sector to provide housing has resulted in a higher bill for the public purse with nothing to show for it but poorer living standards. The government has an opportunity with the upcoming Renters’ Reform Bill to give private renters higher expectations of their landlord and introduce much tougher penalties for landlords who fall short of the Decent Homes Standard.”
Give me the power to freeze London rents
On Twitter, Mr Khan tweeted, “Londoners are being priced out of their city. That simply isn’t right. How much longer will the Govt ignore my calls to fix this? Give me the power to freeze London rents.”
In response, Ben Beadle, the chief executive of the National Residential Landlords Association, replied, “FFS. You have all the powers you need to build and create the environment for new homes. Get on and use them. You are *literally* pricing people out of London through ULEZ and adding extra cost at the worse possible time.”
Landlords are being paid £9 billion every year
An analysis from City Hall reveals that in England, landlords are being paid £9 billion every year to deliver ‘non-decent’ rented properties, and £1.6 billion of this comes from housing benefit. According to the government, ‘non-decent’ is the official government designation for a home that poses a risk to the resident’s life or health, is cold, in a bad state of repair or lacks modern facilities.
The research reveals that the highest rent spend is in London where landlords receive £3.5 billion in rent, of which £500 million comes from housing benefit for 180,000 private ‘non-decent’ rented homes. The next worst region is Yorkshire and the Humber where landlords are picking up nearly £1 billion in rent, of which £130,000,000 is housing benefit for 160,000 privately rented, ‘non-decent’ homes.