When we talk about downsizing in the property world, most think of older people moving from a large family house to a smaller residence once their children have flown the nest. Today, however, downsizing is a big trend in buy-to-let.
To set the record straight, it’s not a matter of property size. Landlords aren’t trading large houses for smaller ones. What they are doing is downsizing the number of properties they hold in an investment portfolio.
The team at Open Property Group read an article published in The Negotiator magazine with interest. The report centred around new research from NRLA, which found over a third (37%) of landlords plan to cut the number of properties they let over the coming year. In stark contrast, the NRLA discovered only 8% said they planned to increase the number of properties they held in the buy-to-let market.
While there has always been a steady flow of landlords exiting the market, to be replaced by new property investors, the number crunching at NRLA uncovered a worrying trend. It says the proportion of landlords who plan to downsize their portfolio – that’s selling buy-to-lets they own – is at an all-time high.
Already, the trade association says 12% of landlords sold properties in a three month period this year, while private landlords are more than twice as likely to sell than make a purchase.
This movement to sell buy-to-let properties is being noted elsewhere too. In late May 2023, Zoopla said that 1 in 10 (11%) of homes it currently listed for sale had previously been rented out and were being sold by a landlord – one of the highest ratios on record.
It added that five years ago, around 50% of these former buy-to-let properties listed for sale returned to the rental market - either unsold or bought by another investor. However, only a third are returning to the rental market more recently.
Adding to the picture was Savills. It started tracking the trend for landlords putting their buy-to-lets up for sale earlier this year. After observations, the agent estimated that 25,000 homes in the UK were sold by landlords between April and May, compared with 22,000 in the previous two months.
These items of new research really resonated with us here at Open Property Group, as we too have witnessed a surge in landlords expressing a desire to reduce their exposure to the buy-to-let market.
Our team members are talking to landlords who own multiple properties and small portfolios, with market conditions and legislative changes meaning property isn’t the cast-iron investment it used to be.
Landlords are keen to share with us how cumulative pressure has eroded their profit margins and forced them to reconsider their options. Section 24, the Tenant Fees Act and minimum energy efficiency ratings (MEES) have already affected income and introduced extra red tap but the fall-out of 2022’s mini Budget and stubborn inflation have created a new nightmare – mortgage distress.
Zoopla’s August House Price Index cited high mortgages rates for the poor volume of sales to property investors, In fact, it said buy-to-let purchases facilitated by a mortgage made up around 8% of property sales in the UK.
The portal added that buy-to-let investors in southern England now need to have equity of 40-50% of the property’s value for a rental to make financial sense, so it expects new investments in property will be lower during the remainder of 2023.
Despite rents rising at record rates across the UK, many landlords are finding certain properties are not turning a profit. Buy-to-lets especially at risk are those where a mortgage is on a tracker deal or standard variable rate, and those where a fixed-rate mortgage is due to end imminently.
The holistic picture is prompting thousands of landlords to downsize their portfolios by offloading the properties that are mortgaged or have the poorest yields. Conversely, many landlords are evaluating the energy efficiency of their buy-to-lets and are deciding to sell those that need costly work to improve the EPCs to proposed new standards.
Deciding to sell now is a double edged sword, however. While selling up is a sure-fire way to end the misery of high mortgage rates and punitive lettings legislation, it is not a buyers’ market. On the contrary, high borrowing costs have led Zoopla to declare that renting is now cheaper than buying for the first time in 13 years. The result? First-timer buyers who usually snap up ex-buy-to-lets are finding homeownership unaffordable and they’re resigned to being stuck in the rental market.
Landlords looking to downsize their investment portfolio do have an alternative to trying to sell on the open market. Open Property Groups is a professional property buyer and landlord, offering sellers a quick and fuss-free way of rationalising the number of properties held.
We have already helped landlords reduce the number of properties they own without the need to sell on the open market. We buy direct from the landlord for cash, with exchange and completion manageable in many cases within a month.
This is achieved as we have instant access to cash to make purchases and we take on the current tenancy, so there is no need to go through the lengthy notice and eviction process.
If you would like to discuss the size of your property investment portfolio and sell the worst-performing buy-to-lets before they make any more of a loss, contact Open Property Group today.
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