How Some Landlords Are Still Succeeding Despite Numbers Hitting a 7-Year Low
The UK’s rental property market, particularly in the south, has experienced a massive increase. With that in mind, it would seem to suggest that now would be as good a time as any to become a landlord and invest in property. However, it is not nearly as simple as that. There has been a noted reduction in the number of landlords around the UK – showing figures reaching a 7-year low. What has caused all this?
Supply Not Meeting Demand, Leading to Increased Competition
In London alone, there were around 6.1 interested tenants for every rental property during 2019. That is an increase of 4.7%, as noted by Knight Frank. As a result, bidding wars are becoming more common and tenants are paying far more than they would have in the past. In fact, bids being made on properties are often more than 20% over the asking price.
People are willing to pay more for individual properties because they know there are less available. So why has this not meant that there are more landlords? It has to do with the government’s taxation of landlords with buy-to-let properties.
Why Landlord Numbers Have Dropped
According to data recorded by New Hamptons, there has been a significant drop in the number of landlords in this country, with the figure being the lowest in 7 years. In 2019, there was a total of 2.6 million landlords. That figure may sound bad in itself, but when you consider that’s a drop of 222,570 since 2017, two years, it is actually at its lowest number since as far back as 2012.
What is the reason for this decrease? It all started when the government brought in stricter taxation policies for landlords. From April 2016, it introduced a stamp duty surcharge of 3% Following that there was an incremental decrease in buy-to-let mortgage tax relief that started in 2017. This will accumulate when April 2020 rolls by and landlords will not have the opportunity to offset any interest payments on their mortgage against their tax bill. According to new guidelines, they will just get a tax credit that is based on 20% of payments.
What Landlords Did Next
Many landlords were essentially forced out of the buy-to-let property market due to the tax and regulatory changes. Some moved any stock they had into the lucrative holiday lettings market, as holiday homes can still be eligible for tax perks.
There were others who completely left the sector, selling up their available stock. This is evidenced according to Knight Frank data, there were 15.5% less new lettings listed in the London area.
It could also cause many landlords based in the south of the country to move their investments elsewhere, to the north in particular, in search of better returns on their investments.
What This Means for Renters
The knock-on effect all of this has had on renters is that because there are fewer landlords with less stock, competition is greater, and the rent prices have increased. As of January, this year, the average rent charged had increased by 6% in the South West of the country.
In some ways the rising rental charges are great for landlords, depending on where they are based.
What Will Happen Next?
It can always be hard to predict, but as the yields continue to increase, landlords who are not moving to other sectors are buying more properties, often using the first-time buyer scheme established by the government – Help to Buy. In 2019, around 30% of the landlords in the UK owned two or more properties. This is the highest level recorded. Things look set to continue like this as time moves on.