I’m sure you’ve seen plenty of headlines over the past six months about the ‘mass exodus’ of buy-to-let (BTL) investors.
Sky News: “Number of landlords selling up rises by nearly 13% in four months.” LandlordZONE: “Why are buy-to-let landlords rushing for the exit?” Even Mumsnet has got involved: “Landlords are selling up in droves.”
There’s no denying that the market has been pretty rough for landlords of late. Speaking to the community over the phone and at industry events, there’s clearly a general feeling of discontent, and often despondence, about the current situation.
‘Selling property’ isn’t the same as ‘selling up’
It’s unsurprising, therefore, that some are selling their properties. The tax perks aren’t what they used to be; investing in new property is more expensive thanks to the 3% surcharge; borrowing costs have risen; and some short-sighted government legislation could make being a landlord even more challenging.
But are we really facing a mass landlord exit? New data from the Hamptons Lettings Index provides a clearer, and perhaps surprising, picture of the situation.
During the birth of BTL mortgages in the late 1990s, financially established Babyboomers flocked to the new market with cash to invest. In fact, 51% of today’s outstanding BTL mortgages were taken out between 1996 and 2007.
In a couple of years we’ll have settled into a new normal for BTL investment, and things will continue
Now, 15 to 25 years later, those same investors are hitting retirement age. While some may retain a BTL property to supplement their pension, an estimated 140,000 landlords retired last year, accounting for an astounding 73% of landlord sales in 2022.
It’s likely that many of these landlords always planned to cash in their investments when they reached retirement; not everyone wants to continue managing a portfolio into their old age, because it is hard work.
Wider market
I’m sure the wider market changes helped a few decide to cash in, but we’d likely have seen a similar exit level even if things had gone swimmingly last year.
Some landlords who planned to sell are changing their mind when the sale return isn’t where they want it to be
What’s more, this scenario won’t be isolated to 2022. An estimated 96,000 landlords will turn 65 in 2023, and that’s in addition to the almost one million already over that age. The annual number of retiring landlords doubled between 2010 and 2022 simply because the community is ageing.
Now, I’m not so out of touch I can’t see a significant number of landlords are so disillusioned with the market that they’re selling property. However, ‘selling property’ isn’t the same as ‘selling up’.
Landlords have always been, above all, incredibly agile
I know a few of our clients decided to cleanse their portfolios of lower-performing properties rather than refinance them onto the higher mortgage rates. They often use the cash to pay off mortgages on other properties, or to have a contingency for future investment in higher-yielding properties such as houses in multiple occupation and multi-units.
Of course, whichever way you cut it, this activity results in a lower supply of rental property at a time of unprecedented rental demand. However, data from Zoopla in the recent Hometrack Rental Market Report shows that numbers of private rental sector (PRS) homes remain fairly static: 5.5 million in 2021 compared to 5.4 million in 2016 across Great Britain.
Positively, this shows that, although undeniably landlords are exiting the sector, new investors are replacing them. Interestingly, it doesn’t seem to be only established (see ‘middle-aged’) people, looking to boost their looming pension pot. At recent landlord shows across London, I couldn’t believe how many young, prospective investors our team spoke to. I know we’re not the only brokerage to recognise this.
The annual number of retiring landlords doubled between 2010 and 2022 simply because the community is ageing
Generation Rent clearly wants in on the rewards it has funded for years.
Zoopla also found that, although around 11% of homes for sale at the start of 2023 had been rented, this was 2% less than last year (although still above average). As house price growth softens — bicker among yourselves as to who’s right, Halifax or Nationwide — some landlords who planned to sell are changing their mind when the sale return isn’t where they want it to be.
Ultimately, businesses adapt to changing economics and, for many, BTL investment is a business.
Landlords have always been, above all, incredibly agile. Since the dawn of BTL-specific mortgages almost 30 years ago, the property market has faced significant challenges and change. And yet the PRS soldiers on, providing safe housing for millions of people.
It’s likely that many of these landlords always planned to cash in their investments when they reached retirement
Things are not easy at the moment, but in a couple of years we’ll have settled into a new normal for BTL investment, and things will continue.
The headlines aren’t wrong, but they’re not the whole picture. Perhaps, rather than a mass exit, it’s a changing of the guard to establish a new face for BTL.
Jeni Browne is sales director at Mortgages for Business
This article featured in the May 2023 edition of MS.
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