Having spent years promoting buy to let, newspapers and their websites have more recently been using negative headlines to draw in readers. However, figures from the mortgage lenders indicate that the number of mortgages issued for new buy to lets is rising. So what is actually going on?
There is no doubt that the number of buy to let landlords has seen a slight decrease over the last couple of years. Some news outlets have seized upon this as evidence of the death of the investment class, proclaiming the end of buy to let as a viable investment.
So how many landlords have sold up? 30%? 40%? More? According to Hamptons International, the figure is more like 7% over the last 3 years. Their figures also indicate that the number of rental properties over the same period is close to flat, suggesting that those staying in the market are buying more.
What we believe we are seeing is not a wholesale exodus of property investors, but a shake out of those whose business models were simply not robust enough to weather recent market, tax and regulatory changes.
The accidental landlord
Those who became property investors not by design but by circumstance, typically though inheritance. Whilst many held on to their properties while house prices were rising strongly, the recent leveling out of the market has prompted sales.
Time was, not long ago, that lenders would advance mortgages of 80% or more to buy to let landlords. Many took full advantage, borrowing as much as possible, putting down low deposits to acquire multiple properties.
Interest payments were high, due to the large mortgages and the premium rates charged for high percentage loans. What made these deals viable was the tax relief on the interest. Since 2017, the government has been progressively reducing the relief, leaving a large number of landlords moving from marginal gains to outright losses. Unsurprisingly, they're selling up.
Any business that depended upon tax relief in order to make a profit started with a broken model right from the outset.
The avid collector
Some investors were taking advantage of freely available high percentage mortgages to buy as many low cost properties as possible. Buy cheap, spend just a little on improvements and get them onto the rental market for the highest possible yields. So went the mantra. And it worked for a while.
They later found out that the long term maintenance of old properties such as Victorian terraces is actually expensive and time consuming. The introduction of legislation obliging landlords to provide annual electrical and gas safety certificates was the final nail, with many owners facing serious upgrade costs. One, selling his portfolio of 27 such houses, rued "I wish I'd bought 12 new properties instead". Spot on.