A record proportion of landlords are planning to sell rental property in the next 12 months as their profitability has fallen for the third successive quarter, according to research.
Research firm BVA BDRC’s Q2 Landlords Panel report, seen by FTAdviser, found more than a quarter (26 per cent) of landlords were planning to sell at least one property from their portfolio in the next year.
According to the report, this was up 8 per cent from the tally measured in the first quarter of this year, three times higher than at the start of 2015 (9 per cent) and the highest level of planned sales the report had ever measured (since 2006).
On top of this, out of the 738 landlords polled in June, just one in seven intended to purchase additional property over the next year.
The most commonly cited reason for wanting to divest property was that it was no longer financially viable or profitable, followed by an increasing burden of legislation alongside "too much hassle/stress for too little return".
The report also found that net profitability for landlords had fallen for three successive quarters — the first time since tracking began in 2006.
Although net profitability remained high at 80 per cent, this was down from 81 per cent in Q1 of this year, from 84 per cent at the end of 2018 and from 85 per cent in Q3 2018.
This decline was partly down to a fall in rental yields which, according to the report, fell to 5.5 per cent in Q2 — the lowest in nine years. Landlords managing houses of multiple occupancy derived the highest average yield alongside student properties.
But profitability has also been affected by tax and legislative changes which have hit the buy-to-let sector over recent years.
An additional 3 per cent stamp duty surcharge, introduced in April 2016, was closely followed by the abolition of mortgage interest tax relief for landlords.
The changes to mortgage relief have been phased into the system since April 2017, but by April 2020 the relief will be limited to the basic rate of tax, currently 20 per cent.
Consumer site Which predicted landlords’ incomes could drop by up to 57 per cent due to the changes.
Since the changes, purchasing a buy-to-let property through a limited company has become more than twice as popular as buying as an individual as it is seen to be more tax efficient.
Landlords took a further hit when a shake up of rules by the Prudential Regulation Authority meant buy-to-let borrowers were now subject to more stringent affordability testing.
The government has since announced a proposed abolition of Section 21 orders — so-called ‘no-fault eviction orders — and has banned all tenant fees, meaning estate agents now charge landlords for the entire cost of letting agreements.
Joanna Leyden, director at Monument Financial, said: “The increased regulation for landlords is likely to be a driving factor, although we are still seeing people buying property as an investment.
“It’s possible too that falling property prices in London have made some decide to increase the diversification of their investment portfolio and reduce their exposure to real estate.”
Shaun Church, director at Private Finance, said the number of landlords selling up was a “trend that will continue”.
He thought there were fewer buy-to-let landlords coming into the market and that those within it will looked to move properties into limited companies.
He added: “I think the people coming out the market will be those ‘accidental landlords’. And I do think it will continue as it’s not going to get any better.
“The market has definitely fallen, for us anyway. We’re not doing very many of buy-to-let purchases at all.”
But Craig McKinlay, new business director at Kensington Mortgages, said although there had been many government imposed changes over the last few years, there was still room to be successful in the buy-to-let space.
He said: “The remortgage market remains strong and limited companies are going from strength to strength.
“Brokers and landlords who focus on the right areas can still be successful and access some of the lowest rates ever seen.”
imogen.tew@ft.com
What do you think about the issues raised by this story? Email us on fa.letters@ft.com to let us know.
