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Quite simply , we do not build enough homes in this country and a lot of people are not able to purchase their own home , so private rented accommodation is their only option . This creates a natural and constant demand . And where there is demand , supply will always follow , which is why I think predictions of a landlord exodus are overstated .
Digging through recent articles , there have been reports of some 200,000 buyto-let properties being sold in 2022 . But some 73 % of these landlords are at , or beyond retirement age , and have simply decided that now is the time to book a profit on their investment while CGT is at either 20 % or 28 %.
This level of CGT should not be taken for granted moving forward as this and successive governments continue to struggle to raise tax revenue . It should also be noted that rental inflation has been running in double digits for the past 15 months , hitting 10.4 % in April , according to property portal Zoopla .
The reason for such a spike in rents , of course , is because of the imbalance between supply and demand . For that reason , Zoopla expects annual rental inflation to top at least 8 % in the second half of the year , even though affordability is becoming an issue in the private rental market .
A new generation is coming through
We know from government data that landlords are typically older . In fact , the last English Private Rental survey put the median landlord at 58 years old .
Moreover , the survey found that almost two-thirds of landlords were aged 55 or over in 2021 , the last time the survey was conducted . But there is evidence that the landlord population is getting younger .
Data from UK Finance shows that the average landlord applying for mortgage finance in June was just 43 years old . It is thought this number is likely to rise even higher over the coming years , with an average of 96,000 landlords turning 65 every coming year . That ’ s on top of the 924,000 landlords who are already over the age of 65 .
That will naturally lead to a more youthful sector , which has its advantages . We find younger landlords have a much larger appetite to grow their portfolios . They also bring fresh energy and new ways of doing things .
Research by LV =, the insurer , shows that landlords who are under 35 are far more likely to be full-time landlords than those who are over 55 – 20 % versus 7 %, respectively . If that is indeed the case , it means we are likely to see the buy-to-let sector become more professional over the coming years , a trend that is already in motion . That can only be good for the tenants as well as the long-term health of the market .
Purchase lending remains robust
Finally , if we look back to the start of the year , the rapid increase in mortgage rates led to doom-filled prophecies that it would kill off the purchase market – at least for the next couple of years .
However , while volumes are down yearon-year , purchase activity picked up in June by 14 % compared to May and at Keystone our activity on for purchases year to date runs at 43 % of applications .
Therefore , despite the Bank of England increasing interest rates for what was then the 13th consecutive month the purchase market is more robust than people give it credit for . While we believe the market will be challenging for the remainder of the year , we believe volumes will recover going into 2024 .
The residential market has also softened considerably , so it has left opportunistic landlords with an appetite to grow their portfolios .
Yes , higher mortgage rates mean that some landlords with low levels of equity are struggling to obtain the leverage they would like to obtain , but they are in the minority . Most landlords borrow at much lower LTV levels .
Secondly , mortgage lenders have evolved and adapted their product offering to the current market conditions , like they always do . For example , earlier this year Keystone introduced a range of higher completion fee products to help landlords who due to the higher interest rates , were unable to pass the interest rate coverage ratio requirements and achieve the loan facilities they desire .
Over the past few months , a number of other lenders have come out with similar innovations to help borrowers in the same position . It shows that by working together , lenders and landlords can still look forward with confidence .
www . keystonepropertyfinance . co . uk