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BTL issues could open door for first-time buyers ‒ analysis
The buy-to-let sector is facing a crossroads with many older landlords selling up, according to brokers. First-time buyers may well be the chief beneficiaries.
Data from Hamptons this week revealed that around 140,000 landlords ‘retired’ from the market over the last year. It suggested that age is a big factor in this move, given 96,000 landlords are turning 65 each year, with around one million landlords currently above this age.
Brokers agreed that they are seeing a heightened interest in selling up among some landlord clients, but questioned how big a driver age really is, compared with changing interest rates and regulations. There were also split opinions on whether landlords exiting the market will really boost first-time buyers.
The end of buy to let?
Some brokers are making fairly dire forecasts for the sector.
Buy to let is dying a “slow and painful death,” argued Lewis Shaw founder of Shaw Financial Services, who forecast this will continue due to the incoming EPC changes, higher rates, and “inevitably more regulation”.
He continued: “Almost every buy-to-let landlord I speak to is selling up because they’ve had enough. The only way buy to let makes sense these days is via a limited company, so I’d expect this type of lending to become the norm.”
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Stuart Gregory, managing director of Lentune Mortgage Consultancy, said that his firm has seen more existing landlords seriously considering selling at least one of their properties, which he put down to the tightening of lending criteria around rental coverage.
He continued: “New enquiries for buy to let purchases are virtually non-existent as well. Where buy to let goes from now on, is anyone’s guess.”
A change of mindset
However, others see landlords adapting to a challenging environment.
Jane King, mortgage adviser at Ash Ridge Private Finance, said that the only older landlord clients who were selling up were those doing so in order to fund retirement from the capital, rather than it being driven by the current environment.
Instead, she said that there has been a “change of mindset” among landlords in terms of the locations where they want to purchase, as well as looking at different assets like holiday lets and HMOs.
She added: “The majority of my landlords have been in this environment for many years and are sticking with their plans as they see an opportunity to increase rents due to shortage of supply.”
It’s not surprising that some older landlords are choosing to sell up, argued Scott Taylor-Barr, financial adviser at Carl Summers Financial Services, given so many invested in property with the intention of supplementing their retirement savings.
He continued: “Many will sell sufficient properties to repay the mortgages on those they wish to retain if the portfolio is large enough to allow that, others will sell up completely to repay the interest-only mortgage they took out and enjoy a lump sum of cash from the growth in property prices.”
Sebastian Riemann, director of Virtus Private Finance, said there appeared to be a shift in the buy-to-let landscape at the moment, and suggested this was more due to the “hike in interest rates and the availability of finance” than anything age related.
He continued: “Since ‘Trussonomics’ got hold of the UK financial markets it has been extremely hard to make figures work, especially for new entrants. You are realistically looking at a sub-50 per cent loan to value in London and the South East to make the figures work.”
Causing more problems
Riemann said that the subsequent increase in rental costs that will result from landlords selling up was a concern.
He explained: “With capital values remaining fairly steady, depending on location, the likely effect is that there will simply be a bigger divide between those with high incomes and deposits ‒ often funded by parents ‒ and those that genuinely have to save up.
“Whilst on paper the idea of landlords selling up to first-time buyers is great, in reality it is likely to cause more problems than it will solve.”
Opening the door for first-time buyers
This is a trend likely to be seen for the rest of the year, or until rates “fall back a bit and ease the pressure” on lender’s background stress rates, argued Martin Stewart, director of London Money.
Stewart suggested that landlords selling up was not down to a desire to retire, but rather a “culmination of events” that started with George Osborne’s final Budget as Chancellor in 2016.
He added that first-time buyers are benefitting from this situation.
“We recently helped a first-time buyer who viewed 11 properties and nine of those were being sold by landlords. Given we have done only two buy-to-let purchases across a multi-adviser firm in the last six months, it does suggest the plates are shifting in the sector,” he continued.
Shaw agreed that a “flood” of first-time buyer property hitting the market could only be a positive.
He continued: “First-time buyers have been up against buy-to-let landlords for the same property for too long, and there has been too much rent-seeking in our economy anyway, so any reduction is a good thing.”
BTL not attractive for younger borrowers
According to King, there is little appetite among younger borrowers to move into buy to let. She explained: “I have seen no evidence of younger people wanting to become landlords except ‘accidentally’ via inheritance or moving in with partner, and clients are telling me that they may only continue this path for a few years before selling to maybe fund a larger main residence.
“As a business it is not attractive due to the onerous regulations attached and the cost of managing agents. They are more interested in equity and stock market investment.”