A new survey suggests the UK’s buy-to-let market might not be the safe financial bet it once was. The study from small business insurer Simply Business found that a quarter of UK landlords plan to sell at least one property in 2020, citing uncertain market conditions and government reforms as major reasons.
The number of buy-to-let properties hitting the market could be as many as 500,000, with 82% of landlords saying they will not buy another property this year.
Many, (including the landlords tipped to sell) are no doubt thanking the Conservatives for the easing of the property market, one that’s already experiencing an increase in enquiries on properties for sale this year.
However, a general shortage of homes coupled with the inability of first-time buyers to raise deposits will continue to subdue the property market, raising the question, will these 500,000 buy-to-lets be snapped up? Or will they stagnate in a market that while saved from a Corbynite freefall, isn’t growing fast enough to demand greater market confidence?
Crucially for landlords, the buy-to-let market does not carry the financial returns it used to. A third of landlords reported a decrease in their rental yield last year, with 26% of current landlords expecting this to continue.
Landlords reported decreased rental yields in 2019:
(20%) reported a decrease of 0-5%
(9%) reported a decrease of 5-10%
(3%) reported a decrease of 10-15%
Looking ahead to this year, 27% of landlords expect to see a further decrease in their rental yield. However, a majority 52% are optimistic about their yield increasing. So could there be other reasons why landlords are selling up?
Changes to the House in Multiple Occupation (HMO) licensing is no doubt a major factor, which has added new stipulations on the minimum size of rooms, as well as banning admin fees for landlords. 9% of landlords included in the survey also said they wanted to “cash in” on their investment, while others cited general economic concerns (5%) as well as stagnating house prices, (4%) as the reasons why they will sell up.
A significant 10% of landlords are also reporting rising maintenance costs as a major reason why they’re selling at least one of their buy-to-let properties this year.
These costs can be felt if the landlord has purchased a property recently at a higher value, where the rental returns will not be as good compared to landlords with properties purchased years ago with now rising values – making their return on investment much higher.
Add to this the costs of building maintenance and repairing whatever tenants feel need to be done and it’s clear why some landlords are failing to see the value in their buy-to-let properties in 2020.