In 2012, there were 2.58 million private landlords. By 2017, the number had risen to 2.88 million, as more people bought into private rental housing in a bid to make extra money and shore up their retirement income. But thanks to government tax changes, this number dropped to 2.66 million in 2019. Does this data suggest private landlords are deserting the PRS?
(Data taken from Financial Times.)
The sector may be at a seven-year-low, but experts believe most of those leaving are smaller landlords. Figures from Hamptons International show that remaining landlords are mostly professional landlords with larger portfolios – and they are working to increase their portfolio size.
Northern Landlords Doing Better than Most
Property ownership data shows that 30% of private landlords now own more than one property. Back in 2009, only 15% of private landlords owned multiple properties. Northern landlords were more likely to own larger portfolios, which makes sense given that you can pick up a cheap terraced property for less than £50k in some towns in Yorkshire and Humberside.
One of the reasons the government implemented sweeping tax changes was to deter smaller landlords from investing. Their desire was to professionalise the sector, which appears to be working as larger landlords increase their portfolios and smaller landlords sell. However, overall, the number of homes in the private rental sector has decreased, which is leading to a shortage of available properties to rent.
“The number of new homes purchased by landlords remains low, which is feeding through to fewer homes available to rent. This is particularly true in the south, where rents are rising the most,” says Aneisha Beveridge, research head at Hamptons International.
The Economics of Supply and Demand
A supply shortage has caused rents to increase by 3.6% in the last year. On average, tenants now pay £998 each month to rent a home, although if they live in London, this figure jumps to more than £1600 a month.
Is this situation likely to change? Well, mortgage interest tax relief is no longer available from April this year, so smaller landlords with large buy to let mortgages have very little incentive to remain in the sector. That and the 3% SDLT surcharge for second and subsequent homes makes it much harder to generate a decent profit from buy to let.
Landlords Still Able to Make a Profit
Nevertheless, a 2019 report by a leading mortgage lender found that 88% of landlords were still able to make a profit, despite hostile government policies, although profits have dropped, with 55% saying they make less money now than they used to.
If professional landlords are increasing their portfolio sizes, there is still money to be made in the sector. Do you fall into this category? Are you planning to buy more properties this year?
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