Around 140,000 landlords retired last year, while a combination of high house prices and buy-to-let tax changes, means “the next generation of landlords has been stemmed,” says Hamptons.
These sales accounted for 73% of all sales by investors last year, and a further 96,000 landlords will turn 65 this year, “which will likely mean that demographics will drive landlord sales to a new peak in the next five years,” says the estate agent in its March Monthly Lettings Index.
It adds: “While age tends to be the primary trigger for selling up, in many cases the decision to sell has been compounded by lower-than-average returns, which in turn have been exacerbated by higher interest rates.”
The move comes despite UK rents rising by 10.8% in the year to March, the second fastest annual increase since the agent launched its lettings index a decade ago.
The report says that many of the landlords leaving the market now were early adopters of the first BTL mortgages launched in 1996.
It points out: “With the average landlord turning 60, it’s predominantly these older investors who are leaving the market.”
Also, there are currently 924,000 landlords who are already over 65.
In the 12 years to 2022, the survey estimates the number of landlords retiring annually has doubled to 140,000 as they grow older.
It says: “It’s this cohort of ageing investors who bought when the sector was growing rapidly that are now increasingly likely to sell up and cash out. They leave behind a gap which is not being filled by new landlords entering the sector.”
The survey points out that these ageing investors, who still make up 51% of the market, have seen the profitability of the properties decline.
It says a landlord who bought 20 years ago was achieving a gross yield of 4.3% relative to their sale price, compared to a landlord buying today who commands a 6.1% yield.
“This implies that in many cases, these landlords are selling homes where long-term tenants were paying rents which have slipped below market rates,” says the report.
The index adds that the March UK rental rate it reports is only the third double-digit increase since it began in February 2014. Other double-digit growth came in May 2022 and February 2023.
In March, the average rent for a newly let home hit £1,236 per month. This is 10.8%, or £121 per calendar month, higher than the same month last year. March saw the second fastest increase posted in any month after the 11.5% increase in May 2022.
Rental growth continues to be led by the capital, with average rents rising 16.2%, faster than anywhere else in the country.
Inner London saw rents jump 18.5% over the last year to hit £3,046, with rents passing the £3,000 mark for just the second month running.
Meanwhile, the 15.6% growth posted in Outer London marks the fastest annual increase on record and takes average rents here to £2,013 per month.
The shortage of homes for rent continues to be a problem, says the survey.
The number of UK homes on the rental market stands 13% above last year’s record lows, but there are still 64% fewer homes available to rent across the country than there were in March 2019, a year before the pandemic
Scotland continues to “bear the brunt” of the rental stock shortage, with the number of homes on the market down 39% year-on-year, more than in any other region by at least 10%.
Hamptons head of research Aneisha Beveridge says: “Two decades on from the birth of BTL 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.
“While house price growth continues to slow, rents keep moving in the opposite direction. Tenants find themselves with a little more choice than they did last year, which has been reflected in a 10% increase in the number of tenants moving home.
“However, the number of rental homes on the market seems to have found a new normal at nearly two-thirds below pre-pandemic levels.”
