Brokers see uptick in tenants offered first refusal on BTLs

Brokers see uptick in tenants offered first refusal on BTLs

Mortgage brokers have seen an increase in enquiries from tenants who have been offered first refusal to buy the property they are renting. 

The buy-to-let market is currently undergoing a “profound transformation”, according to Harmony Financial Services director, Imran Hussain who said many landlords are looking at the forthcoming EPC requirements and deciding to sell at what is arguably “the top of the market”. 

A number of brokers have seen the same trend, while some said it is a welcome break for a small percentage of renters who need help getting on the property ladder. 

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Concessionary purchases

Mansfield-based mortgage broker Lewis Shaw, said the uptick in enquiries has been “enormous” while many of the tenants he has dealt with have been offered an element of gifted equity by their landlord.

“Increasingly, amateur landlords are deciding to call it a day, sell up at a time when prices are at an all-time high and walk off into the sunset,” Shaw said. 

“For buy-to-let landlords, selling to their tenants makes perfect sense: they can ask agents what the market value of the property is and then sell directly to the tenants to avoid any expensive agents' fees, not to mention the hassle of getting involved in chains.”

“Moreover, any reduction in price that tenants can use towards their deposit essentially reduces the capital gains tax payable by the landlord on sale,” Shaw added.

PFEP Wealth Management’s managing director, Richard Bishop also noted an increase in clients reducing their property portfolios. 

Bishop said: “All of our single property investors have now sold up because of the extra EPC legislation, increased tax burden, and the loss of mortgage relief and are trying to remove tenants.”

Of Bishop’s clients that have sold their buy-to-let properties, 80 per cent sold it to their tenants. 

But this option will not be so attractive as mortgage rates increase, Bishop warned.

“If mortgage rates go beyond 2.5 per cent, broadly most buy to let investors could be losing money as the rental will not cover the mortgage payments - there is some lag at the moment with the investor on a fixed rate,” Bishop said. 

Tembo’s head of advice, Kirsty White said they are also seeing this trend and that it can be appealing to tenants who will feel confident buying the property having lived in it for some time.

But while this may be attractive for some first-time buyers who have a suitable credit history, it does add to concerns around dwindling housing stock and the pressure this will put on tenants left to deal with reduced supply and higher rents. 

The National Residential Landlords Association’s policy director, Chris Norris said with landlords leaving the sector and tenant demand so high it is a recipe for “higher rents and less choice, making home ownership harder to achieve for those who want to”.