Meanwhile, more landlords with existing portfolios have been filling the void and increasing their investment property numbers.
But why is this happening and what can brokers to prepare for more complex buy-to-let (BTL) cases?
There are more than 2.65m landlords in the UK, excluding owners renting out furnished holiday lets, according to HMRC. The number has increased significantly compared to 2007 when there were less than one million landlords.
The English Private Landlord Survey 2018, commissioned by the government, found that 45 per cent of landlords owned one rental property, representing 21 per cent of tenancies. A further 38 per cent had between two and four rental properties, accounting for 31 per cent of tenancies. The other 17 per cent of landlords owned five or more properties, which is almost half (48 per cent) of tenancies.
It’s difficult to find accurate, up-to-date information on how many properties landlords own but research firm Statista has data for the first quarter of 2021. It says most private landlords (42 per cent) had between two and four properties, 28 per cent owned between five and 10 and 15 per cent of landlords had one property. At the other end of the scale seven per cent owned 11-19 properties and another seven per cent had 20 or more.
If we go back to 2016, research conducted on behalf of the Council of Mortgage Lenders (CML) found that 62 per cent of landlords owned one rented property. Just seven per cent owned more than five properties but they covered 38 per cent of the rental housing stock.
Although these three pieces of research cannot be compared like for like they do indicate that the number of landlords owning one rental property over the past five years has been in decline – 62 per cent in 2016, 45 per cent in 2018 and 15 per cent in 2021.
Why are there fewer landlords with one property?
There are a number of reasons for this decrease which stem back to 2016. The chancellor back then was George Osbourne who made some significant changes for landlords, mainly involving tax, which inevitably put some people off. There was the additional three per cent stamp duty surcharge, tapered removal of mortgage tax relief and scrapping of the 10 per cent wear and tear allowance.
Then the Bank of England tightened affordability rules by introducing the 5.5 per cent stress test and minimum 125 per cent income coverage ratio for BTL mortgages. There are lots of other rules landlords must be aware of so for some it has just got too complicated and they sold up. But in their place is the rise of the professional and semi-professional landlord.
Big rise in the number of BTL limited companies
Only three per cent of landlords in the CML’s 2016 survey used a limited company status but the tax rules have changed that. The estate agent Hamptons International said that more companies were set up to hold buy-to-let properties between the start of 2016 and the end of 2020 than in the preceding 50 years combined.
In 2020, buy-to-let incorporations were the second most common type of company founded, after firms selling goods online or by mail order. There were 41,700 new companies formed to hold properties in 2020 – a 23 per cent rise from 2019 – and by the end of 2020 a record 228,743 buy-to-let companies were listed.
The Bank of England also brought in new rules in 2016 for landlords owning four or more properties and created the portfolio landlord, adding more complexity for landlords, lenders and brokers.
What can brokers do if faced with complex BTL cases?
If brokers are used to only dealing with vanilla BTL cases, they might be unsure of where to turn if a complex case such as a portfolio landlord comes along.
Brokers should reach out to specialist lenders who will be able to help and offer support through the application process.
Specialist lenders have the ability to be flexible and work around might seem like impossible cases. But the main thing for brokers to be aware of is that if we can help, we will.