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.
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”.
Indeed, the government’s English Private Landlords Survey for 2021 showed that 22 per cent of landlords, representing 29 per cent of tenancies, plan to sell some or all of their portfolio.
“All our research shows that where landlords are leaving, they are considering a range of options. This includes selling to other landlords, moving to the short term lets market or selling to aspiring owner occupiers,” Norris said.
Elsewhere, a spokesperson for UK Finance warned that the timeline for implementation of EPC requirements is short and that action is needed now to ensure properties are upgraded in the numbers required.
The spokesperson said: “The transition to net zero must be fair and proportionate and not acting on this now will simply see poor performing properties pushed out of the rental sector without being made greener.”
But not all landlords have regulation jitters.
Jane King, chartered adviser for Ash Ridge Financial Services said in her experience, her clients are taking a long term view and holding onto their properties.
King said: “They are taking equity from their portfolios to improve properties with EPCs of D of lower. These are experienced landlords with a long term view who want their properties to come up to scratch and do care about their tenants.”
Staton Mortgages director, Mike Staton said he feels the buy-to-let market is "still well and truly alive".
Staton said: "I have accumulated a big portfolio of buy-to-let clients over my career and only one of them has sold their properties during the past three years. For me, rental valuations are increasing significantly and although interest rates are increasing, these costs will inevitably be passed on to the tenant through rent.
"The landlord market is still fruitful and will continue to remain so, however with the new legislations coming into play, such as licensing and EPC guidelines, I think we will see the death of the 'cowboy' who has no intention to care for the wellbeing of their tenants and just wants to make a quick buck. That will not be a bad thing.”
jane.matthews@ft.com
