A quarter of private landlords plan to sell at least one property this year in the face of lower profits, according to new research by landlord insurance provider Simply Business.
The study found that 26% of landlords plan to reduce the size of their property portfolio, mainly due to uncertain market conditions, government reforms and tax increases, meaning more than half a million homes could be put up for sale.
The survey of 800 landlords revealed that with uncertain market conditions, four in five - 82% - of landlords are not planning on purchasing any more properties in 2020.
Just 13% said they would buy another property this year, while a third - 35% - also reported a decrease in their rental yield in 2019.
The top reasons landlords gave for wanting to sell are tax increases and government reform, such as shifting House in Multiple Occupation (HMO) licensing, which added new stipulations on the minimum size of rooms, as well as banning of admin fees. Well over a tenth cited these as their reasons.
Other reasons that landlords gave for planning to sell include rising rental costs (10%), cashing in on their investment (9%), economic instability (5%) and slowing house price growth (4%). This comes after 35% also reported a decrease in their rental yield in 2019, which adds to the desire to sell.
Some 20% reported a decrease of 0-5%, just under one in 10 - 9% - reported a decrease of 5-10% and 3% of landlords reported a decrease of 10-15%.
Looking ahead to this year, 27% of landlords expect to see a further decrease in their rental yield in 2020. One in five - 18% - expect to see a decrease of 0-5%, and a further 6% of landlords expect to see a decrease of 5-10%.
Just 2% of landlords expect to see a decrease of 10-15%, while just over half - 52% - are still optimistic and expect their rental yield to increase in 2020.
Bea Montoya, chief operating officer at Simply Business, said: “Landlords around the country are telling us that government reforms, tax increases, and rising rental costs are forcing them to put their investments up for sale.
“The tax increases imposed by the government are proving counter-productive for landlords, while ongoing political and economic uncertainty hasn’t been providing landlords with the confidence they need to stay in the market. But selling a buy-to-let is a big decision, especially if you’re selling more than one.
“Any landlord looking to sell up should make sure they understand the complexities surrounding buy-to-let sales, particularly if the property is occupied. Any tenants should be made aware of plans to sell as early as possible, and given reassurance their tenancy still stands.
“When it comes to selling, landlords need to understand any tax implications involved, such as capital gains tax. If the property is sold for more than it was paid for, there will be a capital gains tax liability.”
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I understand why some landlords are planning to shrink their portfolios but we are going the opposite way and plan to expand ours.
Government changes will have an impact on landlords who do not hold property in LTD Co structures but the way we see it, there a too few properties and rental demand is high and will be for a very long time. We think that once the dust settles rental yields will increase especially in good locations and with a good spec/facilities.
What you state is largely correct IF you are a cash buyer.
If mortgaged it is not viable.
This is why mortgaged sole trader LL are selling up.
One property sale per tax year is the way to get out of AST lettings.
There will be many LL who invest in a residential property and take in lodgers.
A Live-in LL can be at his main home once per tax year if he wishes.
That makes the property his PPR for the Room For Rent Allowance facility.
For many LL with about 4 rental properties they would be better off investing in a residential property where they notionally live.
This might mean retaining one of the rental properties and converting to a resi mortgage.
S24 makes having multiple mortgaged rental properties pretty pointless.
Of course if Boris increases the HRT threshold that would largely negate the effects of S24 for many LL.
Personally I can't see him doing this as he needs every penny he can to 'buy' the Northern votes for the next GE.
That being the case it makes no business sense to remain a LL subject to S24.
Lodger income can a achieve just as much yield if not more than conventional lettings.
Obviously not having multiple rental properties means no CG on them apart from the one residential.
However I would gamble on CG being minimal over the next 10 years and so it is yield that needs to be concentrated on.
Lodgers are looking for properties compared to being tenants
.
Becoming a lodger LL can be far more profitable than conventional AST lettings.
Yes it means having to share a home with what are strangers.
But no law makes a homeowner stay in their home.
They can be a 'guest' elsewhere.
About the only requirement is to maintain residential insurance a homeowner can normally be absent for no longer than 30 days at a time though residential insurers may have conditions that allow a homeowner longer periods away.
Providing a resi property isn't in an Article 4; Selective or Additional Licensing area then a live-in LL can have 3 lodgers with NO Mandatory HMO licensing required.
Of course if the rooms could comply with HMO regulations then residential properties could have more rooms.
However another factor is that some lenders have restrictions as to how many lodgers they will allow.
Obviously if no mortgage then the homeowner can have as many lodgers as they want subject to any prevailing council requirements which seem to vary across the UK.
But there is no doubt about it becoming a lodger LL is now a far more attractive business proposition to running four AST properties.
A return of the Rigsbies!
Cash rich LL can continue to invest in AST properties as losses caused by rent defaulting tenant is just annoying rather than devastating for a mortgaged LL.
I predict the numbers of sole trader LL apart from unencumbered ones will substantially reduce.
Rich LL may take up some some of the slack but overall I predict 25% of the PRS disappearing
As you intimate that will be good news for those LL able to hang on in there.
It will of course be utter misery for tenants but Govt doesn't care about them.
All Govt wants is fewer small LL.
It is simply not interested in the woes of tenants if this situation ever occurs.
But yes for rich LL I can see things will be very positive in the future.
You are welcome to it.
I'm one of the S24 LL selling up to become hopefully a lodger LL.
Of course lodger LL will cause a severe dent in HMO demand.
But as yet there are insufficient live-in LL to meet the demand that currently goes to HMO.
I believe this will change in the next few years.
LL watch out the lodger LL will be coming to your local rental market very soon!
I was borne the day our National Health started. We keep reading how lots of landlords will be doing some selling this year. If I may, a morbid comment. Baby boomer landlords my age are selling just to spend the last of their cash. I sold one property last year, paid off a few bills and bought a very nice car. I also paid off the mortgage on the next property I will sell.
My point is that you need to put a bit more effort into why the sales are being made. If I was fifty years younger again I would be buying. - as a first time buyer I guess.
You make very valid points.
Substantial numbers of LL who started out in 1996 are now of a certain age when they want to cash out.
The prevailing travails of the PRS are causing them to leave the sector earlier than they had planned.
Only by a few years in most cases.
But when you add up all those sorts of LL that is quite a lot intending to get out of the game.
None of this is good news for tenants as in most cases LL selling up won't leave those rental properties available as rental stock anymore.
So a total net loss of rental stock.
My anecdotal evidence is that former LL properties are being bought by upsizers and downsizers.
None of these are former tenants or FTB.
It was the reason for S24.
But isn't proving effective.
All it is doing is removing property from tenants FTB and existing tenants.
The market is NOT behaving as Osborne intended......................well there's a surprise......................NOT!!!!
It is completely unfair that LL are effectively being forced out of using their capital to house people.
It serms Govt imagines that there are vast supplies of private capital that people are willing to use to house people.
Well there is the capital but Govt is doing everything it can to disincentivise that capital being used to house people.
DON'T understand Govt weird logic.
But forcing LL to cash out isn't doing the poor old tenant any favours at all!!
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