For some time now, tighter lettings legislation and increasing taxation for landlords have resulted in media speculation that landlords are quitting the market.
But 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 PRS has been holding steady for the last decade.
According to a report published last month by Rightmove, there are currently a record number of previously rented homes for sale in England & Wales:
- 18% of properties now for sale were previously on the rental market, compared with 8% in 2010
The hotspot is London, where 29% of homes for sale were previously for rent. Scotland and the North-East come in joint second place at 19%.
However, the previous five-year average is 14%, so this certainly doesn’t suggest a sudden mass exodus of landlords.
“Despite the trend of more landlords choosing to sell up, it doesn’t appear to be a mass exodus, and 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 choices. 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," says Tim Bannister, Rightmove’s property expert.
Is buy-to-let still worthwhile for landlords?
Absolutely. Provided you conduct solid research into the local market, buy well and ensure the property is let and managed professionally, you can still generate a rental income yield that’s in excess of the returns you could get from other financial investments.
Rents are currently rising at a rate over inflation, which should help make buy-to-let more financially viable, and prices are maintaining a steady upward trajectory, meaning your equity should increase over time as well. Of course, markets and trends naturally cycle and fluctuate, so to see the best returns, you need to be prepared to invest for the medium to long term – around 15 years or more.
Scrapping Section 21 (applicable to landlords in England only)
Although much has been made in the media of the ‘danger’ to landlords of Section 21 being scrapped and other planned rental reform changes making it more complex and more expensive to be in the buy-to-let business, good landlords have little to fear, especially if they are working with a qualified agent.
In fact, in most instances, tenants give notice, not the other way around. A more regulated sector with higher standards is a good thing for everyone, and with demand for rental accommodation only likely to keep increasing while new social housing is still well behind building targets, we certainly need private landlords to keep investing.
The number of rental properties on the market is the highest for 10 years
The number of buy to let properties on the market has rocketed over the last year, according to new data.
Figures from TwentyEA reveal, 11.3% of all new properties listed for sale in Q3 2024 had previously been available for rent within the last three years.
This is more than double the 6.8% recorded in Q3 2023 and a significant rise from 8.9% in Q3 2019.
Sharp increase in London
The analysis shows that London led the trend in Q3 2024, with 47.2% of all new properties listed for sale having been previously let, a sharp increase from 27.1% in the same period last year.
While this trend is particularly concentrated in Inner London, new data reveals that every region in the UK saw a rise in previously rented properties entering the sales market between July and September 2024, compared to Q3 2023.
In the East Midlands, the share of previously rented homes for sale jumped from 5.2% in Q3 2023 to 8.4% in Q3 2024. In Wales, it went up from 4.0% last year to 6.1% this year.
Supply of properties is higher than at any point in the last six years
In the residential sales market, the average asking price of properties for sale across the UK in Q3 2024 was £436K, up by £1.8K (0.4%) from Q3 2023 but notably down £20K from Q2.
This drop reflects the mix of property stock being listed as new instructions, rather than the actual prices achieved.
At the same time, the supply of properties for sale for Q3 24 is higher than at any point in the last six years at 456,902, up from 419,807 in Q3 23 – a rise of 9%. Exchanges are also up by 10.9% compared to Q3 2023 as the market continues to bounce back.
Buy-to-let sees gross yields hit record highs
Despite a challenging rental market, buy-to-let properties in England and Wales are delivering their highest average gross yields in nearly a decade.
According to research by Hamptons, the average gross rental yield on a newly purchased buy-to-let in England and Wales has reached 7.2%. This marks a year-on-year increase of 0.5%, with landlords in Wales and the North East seeing the biggest increases.
Rents rising faster than house prices
According to data from Hamptons, Wales saw the largest growth, with average yields climbing by 0.7% to 8.9%.
The North East, traditionally a high-yield region, has also seen yields rise to 9.7%, marking a 0.6% jump compared to 2023. London has also shown strong growth. Although still lower than other regions, the capital’s yields have risen from 5.4% in 2023 to 5.7% in 2024 — a 0.3% increase.
Aneisha Beveridge, head of research at Hamptons, explained the reasons behind the increase, "gross yields on new buy-to-let purchases have picked up a fair bit over the last few years, reaching a record high in 2024. This is predominantly because rents have been rising faster than house prices, but we’ve also seen investors become more yield-focused, actively targeting the highest-yielding properties.
We think that rents are likely to continue outpacing house price growth over the next few years too, albeit slightly less of a gap than we’ve seen over the last few years.”
Market still holds potential
However, Ms Beveridge adds higher costs and mortgage rates do offset a fair chunk of this growth.
According to Moneyfacts, both the average two-year and five-year fixed-rate buy-to-let mortgages are around 5.25%. This means that a typical landlord seeking a £200,000 interest-only mortgage on a five-year fix would be looking at monthly payments of around £875, not including any associated fees.
Despite this, Ms Beveridge emphasises that the market still holds potential for investors.
She said “falling mortgage rates mean that a typical higher-rate taxpaying investor who purchases a buy-to-let in Great Britain today with a 25% deposit at an average mortgage rate of 4.3% will turn a profit in one year which is certainly a step in the right direction."