A new survey suggests that 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.
For landlords looking to shift their stock, the victorious Conservative government is being credited for the easing of a previously uncertain property market, a market that’s already experiencing rising enquiries on properties currently for sale this year.
However, a general shortage of homes coupled with the inability of first-time buyers to raise hefty 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 to demand absolute market confidence?
Most 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, and 26% of current landlords expecting this to continue into 2020.
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%
Will a ‘Boris bounce’ be enough to sell the 500,000 buy-to-lets hitting the market?
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 that explain why so many are selling?
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 of 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 the reason why they’re selling at least one of their buy-to-let properties this year.
These costs can be felt especially if the landlord has purchased a property recently and at a higher value, where the rental returns will not be as good compared to landlords with properties that were purchased years ago and which have risen in value, making their return on investment much higher.
Add to this the costs of building maintenance and repairing whatever tenants feel need to be done, it’s clear why some landlords are failing to see the value in their buy-to-let properties in 2020.