The buy-to-let market has been a popular investment strategy for many years, especially among the baby boomer generation, who saw it as a way to build a retirement nest egg. However, according to research from estate agent Hamptons, it is expected that we will find nearly half a million landlords selling up in the next five years as the baby boomer generation retires and cashes in their assets.
Retiring Landlords Selling Up
Last year, around 140,000 landlords sold up and left the market after reaching retirement age, and almost 100,000 a year are expected to follow suit for the next half-decade.
This wave of landlord retirements is set to put more upward pressure on rents as the number of lettable homes available drops. High prices, rising interest rates, and growing red tape mean new buy-to-let landlords are not replacing those quitting the market in the same numbers.
Aneisha Beveridge, head of research at Hamptons, said: “Over the next couple of years, we’re expecting rental growth to be quite strong and probably outpace house price growth. One of the big reasons for that is that we think landlords will continue leaving the sector, and we can’t see that huge numbers will enter.”
Age and retirement planning are significant factors for investors deciding to call it quits, Ms Beveridge said. The first buy-to-let mortgage was launched in 1996, and many landlords moved into the market as an investment for their retirement. Over half of mortgaged rental properties were bought within 11 years of such loans being introduced, and many of these early adopters are now cashing out. The average age of buy-to-let landlords now stands at 60, and roughly 96,000 property investors will retire yearly over the next half-decade. With many landlords selling rather than continue to manage their properties in retirement.
Changes To Taxation and Too Much Hassle
Changes to taxation and regulation have also meant that “some landlords have decided that they just don’t want the hassle”, Ms Beveridge said. According to Hamptons, retiring landlords accounted for nearly three-quarters of buy-to-let property sales last year. Almost half of buy-to-let properties sold in the previous year were bought at least 15 years prior, up from a third in 2018.
The expected wave of retirees cashing out is expected to push sales of buy-to-let properties to a new peak in the coming years, Hamptons said. However, many will likely be bought as homes rather than rental properties. Soaring house prices and rising interest rates have put the buy-to-let market out of reach for many later generations, Ms Beveridge said.
Buy-to-let is a Changing Landscape
The changing landscape of the buy-to-let market means landlords who once relied on equity from existing properties to purchase new ones may no longer be able to do so. Historically, buy-to-let investors have purchased new properties by taking equity out of their existing properties to get new mortgages. However, according to separate research from Hamptons, high interest rates have destroyed hopes of building buy-to-let portfolios in four in five local authorities.
The lack of supply of homes available to rent has sent prices soaring. According to Hamptons data, rents have risen by 11% on average from 12 months to March, marking the second-fastest annual increase in at least a decade. In Inner London, prices have risen by nearly a fifth.
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