Trend likely to continue as first mortgaged BTL investors reach retirement age
The 140,000 landlords who retired last year accounted for almost three fourths, or 73%, of all sales by investors, according to residential estate agent Hamptons.
Many of these investors were early adopters of the first buy-to-let mortgages, which were launched in 1996, Hamptons noted, adding that with the average landlord turning 60, it is predominantly these older investors who are leaving the market.
This trend will likely continue as a further 96,000 landlords will turn 65 each coming year, which will likely mean that demographics will drive landlord sales to a new peak within the next five years. This is in addition to the 924,000 landlords who are already over the age of 65.
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The purchases made by these landlords 15 to 25 years ago following the introduction of the buy-to-let mortgage still make up the majority of privately rented homes in Great Britain, with just over half, or 51%, of today’s total number of outstanding buy-to-let mortgages taken out between 1996 and 2007.
Hamptons, in its latest monthly lettings index, reported that the ageing landlord profile has played out in recent investor sales, with 45% of homes sold by landlords so far this year bought at least 15 years ago, a figure which has risen in each year since 2018 when it stood at just 33%.
While age tends to be the primary trigger for selling up, in many cases the decision to sell has been compounded by lower-than-average returns, which in turn have been exacerbated by higher interest rates.
Hamptons said that an investor who bought 20 years ago was achieving a gross yield of 4.3% relative to their sale price, compared to a landlord buying today who is achieving 6.1%, implying that, in many cases, these landlords are selling homes where long-term tenants were paying rents which have slipped below market rates.
“Two decades on from the birth of buy-to-let mortgages in the late 1990s, early investors are starting to sell up,” Aneisha Beveridge (pictured), head of research at Hamptons, commented. “This means that demographics alone will push up the number of landlord sales over the next five years to reach a new peak. This was likely to happen irrespective of the tax or regulatory changes introduced since 2016 and the more recent higher interest rate environment.
“But while the tax and regulatory changes haven’t driven a buy-to-let sell off, they have stemmed the next generation of landlords. The number of new purchases by landlords has remained relatively muted. Millennials, who have struggled to get on to the housing ladder, have not been in a position to afford or consider purchasing a buy-to-let too.”
Rents continue to soar
Rental growth across Great Britain in March hit 10.8%, posting its third ever double-digit increase since the Hamptons Lettings Index began just over a decade ago.
In March, the average rent for a newly let home reached £1,236 per month, around £121 per month higher than the same month last year. March saw the second fastest increase posted in any month after the 11.5% increase in May 2022. The other time rental growth hit the 10% mark was in February 2023.
Rental growth continues to be highest in the capital, with average London rents rising 16.2%. Inner London saw rents rise 18.5% over the last year to reach £3,046, with rents surpassing the £3,000 mark for just the second month running. The 15.6% growth posted in Outer London marks the fastest annual increase on record and takes average rents here to £2,013 per month.
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“While house price growth continues to slow, rents keep moving in the opposite direction,” Beveridge said. “Tenants find themselves with a little more choice than they did last year, which has been reflected in a 10% increase in the number of tenants moving home.
“However, the number of rental homes on the market seem to have found a new normal at nearly two-thirds below pre-pandemic levels.”
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