New research from Hamptons Buy-to-Let report suggests that higher interest rates mean that younger buy-to-let investors will not replace older landlords.
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. This means most have been in the business for quite a while and have seen their “fair share” of house price and rental growth.
According to Skipton Building Society data, the average existing landlord who re-mortgaged in 2022 had an LTV of 55%, and as a result, the average existing landlord should be relatively shielded from the impact of higher mortgage rates, certainly more so than those who bought more recently.
The latest figures also revealed that between 2000 and 2022, the number of privately rented homes in England more than doubled (+119%) to 4.6m. Yet, low interest rates and better mortgage availability meant the number of outstanding buy-to-let mortgages rose more than ten-fold (+1,602%) over the same period.
The latest English Private Landlord Survey suggests 66% of existing landlords are now reliant on a mortgage.
More on this, the changes to Section 24, which removed landlords’ right to deduct finance costs before tax and replaced it with a 20% tax credit, mean investors can now be taxed on a loss. If these changes were reversed, the average higher-rate taxpaying landlord would still turn an annual profit of around £605 with a 6% mortgage, instead of making an £850 annual loss.
This illustrates the significant impact of these tax changes, which were introduced at a time when interest rates were expected to stay low for the foreseeable future.
Aneisha Beveridge, head of research at Hamptons told This is Money:
“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.”
This comes as Jonathan Rolande, director of the National Association of Property Buyers, revealed that 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 six 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.
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.”
Data from property tax experts, Cornerstone Tax has found that just 1-in-5 landlords say their investment has been a profitable one in 2023, with a further 1-in-5 admitting that they have lost thousands.
This comes as the National Association of Property Buyers(NAPB) has claimed that previous estimations of half a million landlords choosing to sell up may be a massive under-estimate.
The Renters Reform Bill is also still being considered by the government, which contains radical plans for the housing industry. However, some feel that landlords are being targeted at a time when they are crucial in providing homes.
David Hannah, Group Chairman at Cornerstone Tax, discusses the current landscape of the renting market:
“I think the rental market is filled with uncertainties at the moment, with rising rents making it less attractive from a renter’s standpoint and rising house prices making it less desirable for buy-to-let landlords to grow their portfolios. Our research shows that many landlords were not prepared to deal with the current obstacles facing the rental market as 1 in 5 say they became landlords without the sufficient knowledge needed and have lost thousands as a result.”
