Are landlords really selling up?

Recent headlines in the property news have suggested that landlords have been selling up, but are the headlines accurate or are landlords continuing to invest in property as they have before?

One of the main drivers for the headlines was research from Zoopla published earlier this year, which showed the proportion of homes for sale in England and Wales previously rented had been rising steadily through the pandemic. And even before the pandemic, some landlords were thinking of offloading at least some of their properties, mainly because of tax increases and government reform.

But, according to figures published by ARLA Propertymark, the number of landlords selling properties remained at four per branch every month from October 2020 to April 2021. This figure did rise to five in May, but fell back the following month and has fluctuated between the two since then.

So, it seems that while some landlords are selling up at the moment, the simple fact is that landlords sell every year! Let’s take a closer look at the reasons and the realities of being a landlord today.

Why might landlords be selling now?

It’s certainly possible that some of the landlords who are selling at the moment are doing so to take advantage of the increase in their property’s value and because their investment has been such a success. Figures from the ONS show that in the 12 months to August, average house prices rose significantly:

England        +9.8%

Wales         +12.5%

Scotland    +16.9%

N. Ireland        +9%

UK overall  +10.6%
 

And with the current uncertainty around our economic future, it’s not surprising that some landlords might have chosen to take their profits while the market is still buoyant.

The second reason could be the tighter legislation and increased tax liabilities that have come into force in recent years - many landlords have expressed concern over the resulting increase in their costs. The withdrawal of mortgage interest as an allowable expense has hit profits for some of the higher-rate tax payer landlords and the introduction of an additional purchase tax in each of the four nations (3% in England and N.Ireland; 4% in Wales and Scotland) means Buy to Let investors need to invest more capital at the outset.

On top of this, as more landlords have moved into the HMO multi-let market to boost their profits, legislative changes around licensing have created more hurdles for many of them. Local authority policies in particular have resulted in some increased costs, but also lower revenue for some landlords, as minimum room sizes and other licence requirements have restricted the number of rooms and amount of space that can be legally let.

And with the focus increasing on energy efficiency in rented homes – especially given the government’s pledge to raise the minimum required EPC rating to ‘C’ in the near future – many landlords will have to invest in improving insulation, double-glazing and potentially also a more environmentally-friendly heating system for their properties.

The reality: Buy to Let can still be an excellent investment

Of course, a number of those selling have simply decided to switch their investment rather than exit the market. The pandemic has caused many people to re-think their living situation – particularly those in cities and large towns, where space is at a premium – and so some landlords might have sold city centre properties in favour of investing in more rural locations.

Keeping up to date and complying with the latest legislation can certainly be time-consuming and may also mean extra costs, but the reality is that these laws are there to help drive up standards in the sector and improve living conditions for tenants, which is a good thing.

And while you might need to invest some capital in improving energy efficiency, that’s going to contribute to maintaining and possibly improving your property’s capital value. In addition, the more environmentally friendly you can make it - particularly if you’re targeting the young professional market - the more attractive it’s likely to be to tenants, which could translate into a higher rent and fewer voids.

A thriving rental market

Demand has been strong through the last 18 months. The August ARLA report on the PRS showed that there was a record-breaking number of prospective tenants registered per branch for the second month running. And rent increases hit their highest rate on record, with 79% of agents reporting landlords increasing rents.

Zoopla’s latest rental report, for July 2021, shows that average rents across the UK outside London rose by over 5% over in the year to the end of July - the biggest increase since the index began in 2008 – with rental growth hitting 10-year highs in some regions, including the East Midlands (+6.8%) and the South West (+7.6%). 

In the mortgage market, we’re seeing some of the lowest ever interest rates for Buy to Let, so now could be a great time to buy or remortgage and borrow very cheaply. In terms of average house prices, Capital Economics expects a cumulative increase of 8% between Q2 2021 and the end of 2023, so steady capital growth should continue to support landlords’ rental profits.

While the signs are all good for Buy to Let, the caveat (as always!) is that you need to approach it in a professional way. That means making sure you have the right support to ensure you fulfil your obligations as a landlord, continue to provide the kind of home that meets the demand in your local area and stay up to date with the latest legal changes.

If you’re not sure whether to retain your Buy to Let investment and would like to review your objectives with our local Buy to Let experts, please get in touch. Our team is always available to discuss any aspect of letting, so feel free to contact your local branch at any time.

YOUR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.

Embrace Financial Services usually charges a fee for mortgage advice. The amount of the fee will depend upon your circumstances and will be discussed and agreed with you at the earliest opportunity.