Some 11% of the homes on sale right now are owned by landlords quitting the private rental sector.
That’s the claim from Zoopla in the portals latest market snapshot. This is actually not the highest proportion ever seen - in 2020 some 14% of homes on sale were listed by landlords, but the figure had gradually decreased since then. Five years ago, around 50% of these rental properties listed for sale returned to the rental market - either unsold or bought by another investor. However, only a third are returning to the rental market more recently.
Zoopla says that on average these ex-rented properties are 25% cheaper in asking price than owned homes (typically £190,000 vs £250,000). They are appealing to first-time buyers, particularly in light of tougher buying conditions this year.
Other key points in the latest Zoopla market analysis include:
- House prices have fallen 1.3% in the last six months but the speed of falls is reducing as buyer confidence improves;
- Sales have reached their highest point this year and are now up 11% on the five-year average, therefore encouraging more sellers into the market;
- There are big regional variations with Scotland, the North East and London are currently the best-performing regions;
- Mortgage regulations have helped dampen the impact of higher mortgage rates on house prices so far – although the rebound in activity could be impacted if mortgage rates start to increase in the second half of this year.
Zoopla research director Richard Donnell said, “sellers shouldn’t get carried away by more positive data on the housing market and need to price their homes realistically if they are serious about moving. Homebuyers remain price sensitive with one eye firmly on the outlook for the economy, the cost of living and the trajectory of mortgage rates."
Following last week's shock inflation figure for April, which showed core prices rising rather than falling, the Bank of England may hike base rates to six per cent or beyond. The BoE has already hiked bank rate 12 times in a row to 4.5% and is expected to lift them again at its next meeting on June 22, with more to follow.
This will make life harder for more than a million homeowners on variable rates and another 1.3million whose fixed rate deals end this year. Many will have to pay hundreds of pounds more for their mortgage every month. Some could become forced sellers, which would further boost supply.
Mortgage lenders are running scared, fearing defaults.
The Money Charity's aptly named report, Snapshot of UK Mortgages in Crisis, says fewer people are now applying for mortgages and fewer being approved for them. Chief executive Michelle Highman said, "some homeowners are paying twice as much for the mortgage as they were last year."Many will struggle to cover that kind of increase, especially with other costs also rising."
Now buy-to-let landlords are running scared, too. Their mortgage costs may also rise and many fear for their mental health. For 20 years, buy-to-let was a brilliant investment, as the growing army of amateur landlords enjoyed rising income from rentals and capital growth from spiralling house prices.
Borrowing costs were ultra-low and they could claim full tax relief on their interest repayments, too. Since 2016 that tax relief has been scaled back, and buy-to-let investors have to pay a 3% surcharge on property purchases. Now Levelling Up secretary Michael Gove is tightening rules for the country's 4.4million rental properties in a bid to drive out rogue landlords.
The new rules make it harder to evict tenants who cause damage or fall behind on the rent. Gove will also introduce compulsory rolling tenancies and new rights for renters to have pets. If Labour win the next election, Keir Starmer is expected to double down on the landlord attack.
Experts have repeatedly warned the overhaul will backfire as landlords cut their losses and run, reducing the supply of rentals and driving up costs. David Hannah, chairman of property tax experts Cornerstone Group International, said "there's now an "exodus" of buy-to-let landlords."
Its research shows just one in five landlords nnow say their investment is profitable, with a similar percent proportion losing thousands. As a result, 65,000 rental properties went up for sale in the first three months of this year.
Hannah says, "the sell-off does have a positive element, by making it easier for first-time buyers to get on the property ladder. But it will make life even harder for tenants by reducing the supply of properties and driving up rents, which are already at a record high. The average monthly rent outside of London has surpassed £1,000 for the first-time ever, according to Hamptons, after rising 7.8% in a year. In London, rents soared 17.2% to a record £2,200 a month. As costs escalate and financial pressures mount, buy-to-let landlords are off. The sharp rise in expenses, ranging from maintenance and management fees to taxation and regulatory burdens, has compelled some landlords to reassess their portfolios."
First-time buyers have done battle with buy-to-let landlords for years, and often came off second best. The playing field has now been levelled a little. Falling house prices may be exactly what we need, provided it doesn't turn into a full-blown crash that would wreak economic havoc.
Either way, there is little comfort for tenants who have less choice but now have to pay even more for a roof over their head. While there are rogue landlords out there, demonising the honest majority isn't right. The housing shortage isn't the fault of buy-to-let landlords, but they're getting the blame.
Capital Gains Tax change to dampen transactions and prices
The upcoming change to the tax-free allowance for Capital Gains Allowance is expected to dampen down the property market, leading to fewer transactions and potentially lower prices – with landlords and investors taking a more conservative approach to their investments. That’s according to bridging broker Finbri, which polled landlords on the subject, finding that 45% of landlords are concerned (23%) or strongly concerned (22%) about Capital Gains Tax allowance.
The tax-free allowance for Capital Gains Tax was cut from £12,300 to £6,000 in April and will drop further to £3,000 in 2024 – cutting into the profits made from properties from house price growth. The lender said, “the recent introduction of the new CGT rate in April, along with the previous restriction on mortgage interest relief and the increased stamp duty rates, will have a major impact on the profitability of landlords and investors when they sell their properties. The private rental market plays a crucial role in the UK’s housing sector by providing people who are unable to purchase properties with a place to live and landlords with an income source. However, with rising rates landlords are facing a great deal of strain and it may push more of them to exit the market.”
Nearly half of landlords (44%) have indicated that they will sell off their properties in response to the financial strain, combined the impact of the stamp duty surcharge and the upcoming Renters Reform Bill. Figures from HM Revenue and Customs illustrate that Capital Gains Tax receipts have risen by £3bn in the last year, whereas stamp duty has only increased by £1bn, a result of the sharp decline in the housing market.
Despite landlords’ concerns regarding the tax there is optimism, as 45% said they believe now is a good time to invest in the property market and the same proportion think they will invest in 2023 – as some are clearly looking to take advantage of a quieter property market to get a good deal.