Is the landlord exodus as bad as everyone thinks?

We all hear about the landlord exodus but just how bad is it?

New figures from the Office for National Statistics (ONS) and estate agents Hamptons reveal that the trend of landlords selling up hasn’t been as big as many people believe.

However, since 2016, landlords have increasingly been selling more properties than they have bought due to a range of different factors.

Research by Hamptons reveals the difference between landlords buying and selling each year since 2010.

The estate agents used their data to track the share of homes bought and sold by landlords and then used these figures, alongside HMRC completion numbers, to estimate the total number of properties landlords across Great Britain were either buying or selling.

Since 2016 things have begun to change

The figures show that the trend of investors selling more properties than they bought wasn’t always the case.

In 2010, landlords sold only 38,190 properties compared to 119,230 that were purchased.

Similarly, in 2011 they continued to purchase properties at a high rate. Landlords sold only 57,770 properties compared to 124,160 that were purchased.

In the years that followed, landlords happily continued to buy properties rather than sell.

However, since 2016 things have begun to change.

Aneisha Beveridge, head of research at Hamptons, said when George Osborne announced that tax relief on mortgage interest for landlords would be phased out many landlords began to sell.

She told Property118: “This began in 2017 so some landlords started selling up beforehand – particularly if the changes pushed them into the 40% tax bracket.”

It’s no wonder because in 2016, property investors sold more than 195,000 properties compared to 159,850 that were purchased.

Tax changes biggest sucker punch to landlords

Rob Dix, co-founder of property advice website Property Hub, says the 2016 tax changes provided the biggest sucker punch to landlords.

He told This is Money: “Many landlords will feel that they are an easy target for politicians and therefore may be hit with further taxes that discourage them from further investment.

“With mortgage costs rising, the inability of individual landlords to offset interest costs is going to become more of an issue over the coming years.

“Reversing the policy will be politically unpopular, but there’s an outside chance that an incoming government will do it when they’re a long way from the next election.”

Section 24 isn’t the only factor for landlords selling up, reasons including high mortgage rates to selective licensing and other reasons are also at play.

Landlords face increased costs on all fronts

The average two-year buy to let fixed-rate mortgage currently stands at 6.63%, according to financial experts Moneyfacts, up from 2.94% two years ago.

The National Residential Landlords Association (NRLA) warns the supply crisis will get worse and more landlords will sell up.

Chris Norris, policy director at the NRLA, said: “Landlords face increased costs on all fronts, with profits at a 16-year low.

“Some have already seen their mortgage payments increase by almost 240% over the last two years.

“In this climate, it is no surprise that our latest research found landlords are more than twice as likely to sell up than they are to purchase properties. This will pile more pressure on a rental system already under significant strain.”

Higher mortgage interest rate since mini-budget

Estimates by the estate agent Savills showed that 25,000 homes in the UK were sold by landlords between April and May, compared with 22,000 in the previous two months.

The sell-off appears to have gained pace since the height of the Covid pandemic, as landlords started to feel the pinch of rising costs and interest rates, which made new BTL mortgages more expensive to repay.

Official figures from HM Revenue and Customs – based on capital gains tax data – suggested that landlords sold 153,000 properties in 2021-22, 8.5% more than originally estimated.

Recently, changes have also been made to capital gains tax thresholds, and in April 2023 the capital gains tax-free allowance was reduced from £12,300 to £6,000.

In April next year, this will decrease to £3,000.

Toby Parsloe, a research analyst at Savills, told the Guardian: “The rise in residential disposals in capital gains tax receipts does point to a greater number of buy to let landlords selling up.

“The data also suggests this trend started earlier than previously thought, picking up pace since the market reopened again in June 2020 after the first Covid lockdown.

“We know mortgaged buy to let landlords have been hit by the double whammy of higher mortgage interest rates since the mini-Budget and also the end of mortgage interest relief since 2020, which has reduced profitability to its lowest level since 2007.”

He added: “With more landlords expected to come off fixed rates in the coming months, there is a very real risk that more will be looking to exit the sector.”

Selective licensing trap

Across the country, property investors are also being caught in the selective licensing trap.

Mr Norris from the NRLA said it’s puzzling why some councils feel the need to establish selective licensing schemes.

He explains: “With the government already committed to introducing a property portal which will allow local authorities to look up landlords’ details, it’s unclear why some local authorities feel the need to establish selective licensing schemes which act as a tax on good landlords.”

Other critics of the selective licensing scheme include Ben Quaintrell, the founder of the estate agency group My Property Box.

He says: “Selective licensing in some areas can essentially be an unfair mandatory tax, and the councils run a real risk of driving up rents at a time of economic hardship.”

He believes that selective licensing could cause landlords to leave the private rented sector and adds: “Many landlords will have little choice but to pass on the quite considerable cost to tenants.

“Given the already substantial landlord legislation, it may even cause some to quit, leading to a greater shortage of rented properties.”

Number of new investors muted since 2016

According to Hamptons, so far this year, investors have sold 67,430 properties across the UK compared to 53,030 that have been purchased.

In 2022, 192,650 homes were sold by landlords, compared to 145,880 that were purchased.

Ms Beveridge says that the trend towards landlords opting to sell hasn’t yet become worse due to higher BTL mortgage rates – though this could still happen as more fixed rates expire.

She said: “While we haven’t seen a mass landlord sell-off, the number of new investors buying into the sector has been muted since 2016.

“And this is what’s causing the supply gap – there were 43% fewer homes available to rent across Great Britain in July than the same time in 2019.

“Consequently, there’s likely to be a net loss to the private rental sector this year with sales outpacing new purchases – the eighth year in a row.”

% of landlord sales and purchases each year (Great Britain)

Ms Beveridge explains the first table shows the percentage of homes purchased and sold by landlords across Great Britain.

She continues: “As you can see, there have only been very subtle signs that landlord sales have picked up in recent months.

“Although they’re still down year-on-year – landlords made up 14% of all sellers across Great Britain last month, down from 16% last year.  Whilst the figures are higher in London, again, proportionally there are fewer landlord sales than this time last year.

“Interestingly, on a year-to-date basis, landlord sales are down in every region apart from Scotland, which is where the government have taken a more robust approach to regulating the rental sector in recent years.”

Renters’ Reform Bill is expected to create a big change

New legislation changes such as the Renters (Reform) Bill are also causing landlords to sell up, according to one legal expert.

Gina Peters, the head of landlord and tenant at law firm Dutton Gregory, says new legislation will be a big change in the private rented sector.

Ms Peters said: “The Renters (Reform) Bill is expected to create a big change to the way landlords can regain possession of their properties.

“This comes at a time when the backlog in repossession cases to be heard at court is already at record levels.”

She urged the Government to find a solution that would make it financially viable for landlords to retain their buy to let portfolios, as it was critical to a healthy property market.

Ms Peters said: “Many of our clients are asking what’s next?

“The government needs to step up and find a solution so that it remains financially viable for landlords to retain their buy to let portfolio, as it’s critical to a healthy property market.”

Landlord exodus could soon become a reality

With the scrapping last week of energy performance certificate (EPC) rule targets by the Prime Minister Rishi Sunak, will this help property investors to remain in the market?

That remains to be seen but with many landlords already making expensive upgrades to their properties before the announcement was made, some may be feeling hard done by.

Whilst the landlord exodus may not be as big as we first feared, since 2016 investors have been selling up and the number of new investors coming into the market has been ‘muted’.

And with more legislation on the horizon, a feared landlord exodus from the private rented sector could soon become a serious reality.

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