For some time now, tighter lettings legislation and increasing taxation for landlords have resulted in media speculation that landlords are quitting the market.
But while it’s true that some have decided to stop being landlords, the reality is that a lot of rental properties come to the sales market simply because landlords have reached the end of their planned investment journey. They’re around retirement age, have made good money from property over the years and now want to realise their equity gains. Many of these are snapped up by other landlords – often professionals who are continuing to grow their portfolios – and the proportion of households renting in the PRS has been holding steady for the last decade.
So, what’s really happening at the moment?
According to a report published this month by Rightmove, there are currently a record number of previously rented homes for sale in Great Britain:
18% of properties now for sale were previously on the rental market, compared with 8% in 2010
The hotspot is London, where 29% of homes for sale were previously for rent. Scotland and the North-East come in joint second place at 19%.
However, the previous five-year average is 14%, so this certainly doesn’t suggest a sudden mass exodus of landlords.
“Despite the trend of more landlords choosing to sell up, it doesn’t appear to be a mass exodus, and we will need to monitor the longer-term impacts of what happens to the rental supply that is put up for sale. For example, these homes could provide first-time buyers with more choices. They might also be purchased by other landlords and put back into the rental market, which would signal a changing of the guard rather than a complete exit from landlords.” – Tim Bannister, Rightmove’s property expert.
Is buy-to-let still worthwhile for landlords?
Absolutely. Provided you conduct solid research into the local market, buy well and ensure the property is let and managed professionally, you can still generate a rental income yield that’s in excess of the returns you could get from other financial investments.
Rents are currently rising at a rate over inflation, which should help make buy-to-let more financially viable, and prices are maintaining a steady upward trajectory, meaning your equity should increase over time as well. Of course, markets and trends naturally cycle and fluctuate, so to see the best returns, you need to be prepared to invest for the medium to long term – around 15 years or more.
Scrapping Section 21 (applicable to landlords in England only)
Although much has been made in the media of the ‘danger’ to landlords of Section 21 being scrapped and other planned rental reform changes making it more complex and more expensive to be in the buy-to-let business, good landlords have little to fear, especially if they are working with a qualified agent.
In fact, in most instances, tenants give notice, not the other way around. A more regulated sector with higher standards is a good thing for everyone, and with demand for rental accommodation only likely to keep increasing while new social housing is still well behind building targets, we certainly need private landlords to keep investing.