How the rent crisis is unsettling British landlords

Theoretically, a record jump in rental prices should benefit landlords.

Because according to Zoopla, In 2020, rents for new premises rose by 31 per cent, leading buy-to-let investors to charge tenants an extra £3,360 a year.

Despite this, however, a jump in income, the reality of high rents, on the contrary, led to the fact that a huge number of landlords were forced out of the market.

Higher rents mean that first-time buyers are doing their best to get on the property ladder, simply because high mortgage rates have weakened investors' purchasing power.

As a result, first-time buyers are are now overtaking landlords when it comes to controlling the UK mortgage market.

New Bank of England data shows that first-time buyers accounted for 25.8% of new mortgages by value between July and September, the highest since records began in 2007.

In contrast, the share renters in the mortgage market fell to just 7.5%, the lowest level in 13 years, and almost four times less than first-time homebuyers.

The numbers mask the fact that overall lending has fallen, although it is clear that first-time buyers are becoming the most resilient group in the property market, while buy-to-let investors are the weakest.

< p >High rents and tight supply in the rental sector are key to understanding this trend, says Lucian Cook, director of housing research at Savills.

“This has motivated them to make every effort so that they can benefit from the security of owning their own home,” he says.

Another problem for landlords has been rapidly rising mortgage rates, which has squeezed profits.

“For them, the recent surge in rent growth was more than offset by higher mortgage costs and limited tax benefits,” Cook said.

For the year ended in September, borrowing for According to analysis of Bank of England data by Savills, the number of first-time buyers fell by 12%, while for buy-to-let loans the fall rose to 35%.

Neil Hudson, founder of research firm BuiltPlace, says: “Only those who absolutely must buy are buying, and this group are first-time buyers due to the state of the rental market.”

He adds. that many first-time buyers are taking on the cost of higher mortgage rates in favor of owning a property, mainly because the alternative to renting is inferior.

This pattern has led to rental investors disappearing from the market. Becky Munday, managing director of south London estate agency Munday, says no buy-to-let investors have completed a sale this year.

“They usually make up 25% of our sales,” she says. «It was a complete change.» In contrast, half of sales come from first-time homebuyers, she adds.

There has been a shift in the balance of power in the property market, from investors to first-time buyers, says Richard. Donnell, head of research at Zoopla.

That's because for many first-time buyers, buying is still cheaper than renting, he adds.

Rent increases in recent years three years means tenants will now have to pay an extra £280 per month for a typical property.

This is similar to an increase in monthly mortgage payments of £150,000 over the last three years, based on average rates according to Moneyfacts.

However, first-time buyers were able to offset some of these costs.

A record share of first-time buyers are now taking out 35-year loans, rather than the previous 25 years. This allows them to reduce their monthly payments.

An increasing number of people are also turning to the Mom and Pop bank for financial support.

According to Savills, in 2022, 46% of first-time home buyers received financial help from their families. The estate agent expects the figure to reach 61% in 2023, which would be the highest since 2011.

Parents have stepped in to keep their children out of the rental market, Munday says. “People who have children that age say they just can’t justify the high rent.

“People don't want their children to receive handouts, but they also don't want them to pay money for nothing.”

First-time buyers now have a competitive advantage over buy-to-let investors, says Rob Jones, director of Property Investments UK.

However, as mortgage rates have risen, so have interest rate bills.

Based on average Moneyfacts rates, the cost of a two-year fixed-rate, interest-only loan for a let mortgage has jumped by 107% over the past two years.

Landlords and first-time buyers typically compete for similar properties—smaller, more affordable apartments and townhouses on the first rung of the housing ladder.

First-time buyers now have an advantage in this market, says Jones.

First-time buyers now have an advantage in this market, Jones says.

First-time buyers now have an advantage in this market, says Jones.

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According to him, first-time buyers of real estate are increasingly outbidding landlords. It marks a two-bedroom terrace that Property Investments UK recently sold in Oldham, Greater Manchester. An investor offered £100,000 but a first-time buyer bought it for £110,000.

The resilience of first-time homebuyers is supporting house prices, says Hudson.

p>Before the Bank of England started raising rates at the end of December 2021, investors had to purchase properties with rental yields of 5% to make a profit, Jones says.

They now need properties with at least an 8% yield, which are virtually impossible to find in much of the South, as well as in cities such as Birmingham and Manchester, which were previously popular among buy-to-let investors, Jones says.

< In addition to rising rates and falling demand, landlords are also facing stricter tax rules and challenges from the Tenant Reform Bill, according to Andy Shepherd, chief executive of estate agency Dexters.

The changes, which came into full effect in April 2020, mean landlords can no longer deduct mortgage interest against profits for tax purposes, meaning some must pay tax even if their property is a loss-making property.

At the same time, Housing Secretary Michael Gove is introducing a bill to abolish Section 21 “no fault” evictions, meaning landlords will have to take tenants to court to evict them.

“ Margins are very low, even though rents are rising and the government is essentially pushing landlords out of the market,” says Shepard. “It's putting off new landlords.”

It's also causing many to decide to sell.

More than one in every 10 properties listed for sale on Zoopla have been previously rented. renters, and the average price of these properties is now 25% lower than the average price of an owner-occupied home.

Zoopla's Donnell says this will only strengthen the balance of power in the property market: «Essentially, what landlords are selling is the ideal property for a first-time buyer.»