Landlords continue selling up – but it’s not an exodus

Landlords continue selling up – but it’s not an exodus

0:01 AM, 21st June 2023, About 9 months ago 13

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There is a consistent stream of private landlords leaving the UK’s property market – and it has been a steady flow since 2018 – but it is not an exodus, Zoopla says.

The property platform says the overall number of privately rented homes has remained unchanged since 2016, thanks to increased investments from corporate landlords and institutional investors.

But rents now account for 28% of pre-tax earnings – the highest level for 10 years.

Zoopla also says that its data highlights that one out of every 10 homes listed for sale on its website were previously rented properties.

Landlords are feeling the pinch

Landlords with mortgages, who make up 20-30% of the market, are feeling the pinch as higher borrowing costs take their toll.

This pressure is more intense in London and the South East, which together account for 51% of landlord sales across the country.

However, while the trend of private landlords selling off their properties is not accelerating, it does highlight the shifting landscape of the rental market.

Richard Donnell, an executive director at Zoopla, said: “A proportion of landlords continue to sell but talk of an exodus is overstated.

“The real pressure of higher mortgage rates on landlords hits the 20-30% with the highest loan to value mortgages where landlords may need to inject extra capital when they refinance or look to sell.”

He added: “Half of all landlord sales are in London and the South East where yields are lowest and the economics of being a landlord are toughest.”

Rental affordability has reached its worst level in a decade

Zoopla also says that rental affordability in the UK has reached its worst level in a decade, with rents growing faster than earnings for the past 21 months.

Currently, rent accounts for 28.3% of average pre-tax earnings, compared to the 10-year average of 27%.

London remains the most expensive region for renters, with rent consuming an average of 40% of gross earnings.

However, this is still below the peak of 43% recorded in September 2015.

Among the 12 regions in the UK, seven are experiencing their worst rental affordability in a decade.

On a city level, Edinburgh leads the pack with a 13.7% increase in rental growth, followed by Manchester (13%), Glasgow (12.3%) and Southampton (10.7%).

Zoopla predicts that rental growth will decelerate to around 8% by the year-end, but this figure will still surpass earnings growth.

‘Renters continue to face a relentless increase in rents’

Mr Donnell said: “Renters continue to face a relentless increase in rents, compounding wider cost of living pressures and making home moving decisions ever more challenging, especially for singles and those on lower incomes.

“The chronic imbalance between supply and demand continues to push rents higher but we expect increasingly stretched affordability will start to reduce the pace of rental growth into 2024.”

He added: “While there is concern over the impact of higher mortgage rates on those with mortgages, renters have already seen a £2,820 a year increase in rental costs over the last five years.

“Some renters are experiencing more stress from higher rents with a jump in those finding the rent difficult to pay.”

The availability of rental homes

The data also reveals that the availability of rental homes is not expected to improve significantly, making a fall in rent prices unlikely.

The imbalance between supply and demand will continue to persist and higher mortgage rates will restrict first-time buyers entering the property market.

Rental home supply remains 20-40% below pre-pandemic levels in most regions, intensifying competition among renters and fuelling rental growth.


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Comments

Andrew Dove

8:05 AM, 21st June 2023, About 9 months ago

Always very good research from Zoopla, but Richard does miss a point about portfolio landlords.
As a professional landlord in this category, who constantly analyses the numbers, I will be selling underperforming properties to pay down debt and this will reduce rental supply. I will only build this debt back up with new purchases when exceptional opportunities arise that can leave a return after paying 5.5% interest and all other costs. Bottom line is that there will be less supply.
I depend on this free website calculator I created to guide my decision making.
https://rentyieldcalculator.co.uk/

Beaver

9:10 AM, 21st June 2023, About 9 months ago

Reply to the comment left by Andrew Dove at 21/06/2023 - 08:05
This is a good article. And it does make this point:

"The overall number of privately rented homes has remained unchanged since 2016, thanks to increased investments from corporate landlords and institutional investors."

So smaller unincorporated landlords are exiting and the number of incorporated landlords and institutional landlords is increasing to mop them up. But although demand is going up supply remains the same despite these institutional investors coming in.

No wonder rents are rocketing.

Fiona Wilks

9:23 AM, 21st June 2023, About 9 months ago

how does Zoopla know if you are selling a rental property.....if a tenant leaves and the property is subsequently sold with vacant possession?

Paul Essex

9:44 AM, 21st June 2023, About 9 months ago

I am not overly surprised, if you have good tenants and are not over leveraged there is no need to panic sell. I suspect however that many small LLs will not rent out again once those tenants move on.

More like a slow motion car crash.

dismayed landlord

12:16 PM, 21st June 2023, About 9 months ago

I agree Paul. I am not forcing my remaining tenants out but will be increasing the tents in line with the market. If they leave I will sell. I am hoping they will leave. No intention of staying in the PRS. I was going to go for one per year but as the CGT allowance is shrinking to zero there is no longer any incentive to hang on and wait.

Monty Bodkin

12:16 PM, 21st June 2023, About 9 months ago

"The property platform says the overall number of privately rented homes has remained unchanged since 2016, thanks to increased investments from corporate landlords and institutional investors."

https://www.propertyinvestortoday.co.uk/breaking-news/2023/5/build-to-rent-sector-stalling-as-completions-slump-says-report

Build-to-rent sector stalling as completions slump, says report

Tony Johnson

15:48 PM, 21st June 2023, About 8 months ago

As if an estate agent is going to give you an independent analysis of the market.

Wait until Gove's Bill passes and then all landlords get the 6 month advance warning before sec 21 disappears.
Those 6 months will see the biggest exodus the PRS has ever seen.

Beaver

18:00 PM, 21st June 2023, About 8 months ago

Reply to the comment left by Monty Bodkin at 21/06/2023 - 12:16
What that link (dated May 2023) says is:

"..the good news for landlords is that the rapid growth of build-to-rent has stalled, which means tenants are, for the foreseeable future, still going to be reliant on private rental stock and buy-to-let landlords.”

I had seen a press release which said that build to rent had stalled in Scotland (unsurprisingly) but not this one.

The things that irk me are that pension funds can invest in residential property, but I cannot invest my SIPP in residential property; pension funds can deduct their finance costs and build to rent companies can deduct their finance costs from income, but I cannot deduct my BTL finance costs from income; and much of what the government thinks I should do as a BTL landlord is capex, I have to go back to finance companies to finance that and cannot deduct that from my income.

So I'm not sure how much "good news for landlords" there really is. What I know though is that implementing EPC changes is definitely going to be very *bad* news indeed for tenants especially when there is a shortage of supply of rental property.

Andrew Dove

20:18 PM, 21st June 2023, About 8 months ago

Beaver,
There is a way to do this indirectly through a SIPP if you don't mind someone else doing all the work!
2 quoted companies I am aware of are direct plays on Buy To Let.
The first is called PRS Reit. I think it has over 5000 properties. It borrows most of its money with fixed rates around 3% fixed for many years. As a REIT, it has a very favourable tax treatment.
The second is called Grainger PLC. Grainger is a bigger, better established company but has lower yield. It is expected to become a REIT in a few years time once it meets the qualifying conditions. Also has long term debt locked in at low rates.
Both these companies trade below net asset value, so it could be seen as akin to buying property BMV.

Beaver

7:26 AM, 22nd June 2023, About 8 months ago

Reply to the comment left by Andrew Dove at 21/06/2023 - 20:18
What I'm talking about is doing it directly via a SIPP. Pension companies are allowed to invest in residential company. Individual pension holders are not.

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