A significant number of landlords are opting to sell their properties due to the current surge in mortgage rates, resulting in tenants facing higher rents and a squeezed housing market. According to data from Savills, approximately 25,000 homes were sold by landlords in the UK between April and May, compared to 22,000 in the previous two months. This trend has been accelerated by rising costs and interest rates, making new buy-to-let mortgages, particularly interest-only contracts, more expensive to repay.
HM Revenue and Customs’ official figures, based on capital gains tax data, indicate that landlords sold 153,000 properties in 2021-22, which is 8.5% higher than the original estimate. Savills suggests that this data reflects an increasing number of buy-to-let landlords selling their properties over the past two years, potentially leading to a reduction in the number of properties available for rent.
Interestingly, this sell-off is occurring despite a decrease in property prices. Hamptons International reports that investors who sold their buy-to-let homes in 2023 after 11 years of ownership made an average profit of £94,800 compared to the original purchase price. While this figure is 10.1% lower than the previous year’s record average, it indicates that landlords are still able to capitalize on their investments.
During the pandemic, the property market experienced a slowdown due to lockdown restrictions and economic uncertainty. However, Toby Parsloe, a research analyst at Savills, suggests that this trend of landlords selling their properties started earlier than anticipated and has gained momentum since the market reopened in June 2021. He attributes this to the combination of higher mortgage interest rates and the end of mortgage interest relief, resulting in reduced profitability for mortgaged buy-to-let landlords.
It is unclear whether these sold properties have been purchased by other landlords, reinvested in alternative properties, or completely withdrawn from the rental market. However, Parsloe warns that with more landlords expected to come off fixed-rate mortgages in the coming months, there is a significant risk of further exits from the sector.
Despite the sell-off, rental prices in England, Scotland, and Wales continue to rise. According to Hamptons, the cost of a new tenancy has increased by 9.9% (£116) to reach £1,282 per month in the year leading up to July. This marks the 27th consecutive month of annualized rental price growth exceeding 5%.
Hamptons also notes that the average rent is now 28% higher than it was in February 2020, just before the onset of the pandemic. However, it is unlikely that landlords will be willing to sell their properties at a loss, which could indicate a potential floor for the sell-off. Only 6% of landlords have sold at a loss in 2023, slightly higher than the previous year but still an improvement compared to 2020, when 10% of landlords sold at a loss.
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