Landlords behind highest % of BTL purchases since 2016, according to Hamptons.
Buy-to-let landlords are joining the rush to take advantage of the stamp duty holiday, with the proportion of property sales agreed with investors hitting its highest level in four years.
In November, landlords made 15% of agreed property purchases in England, Wales, and Scotland, more than at any time since December 2016, according to research from the estate agent Hamptons.
The Midlands and the north of England attracted the most attention from investors looking to add to their property portfolios.
More than one in five (22%) agreed sales in the West Midlands were to private landlords rather than buyers intending to move into the property, while investors were involved in 18% of sales in the north of England.
Blackpool was the most popular location for landlords, who were involved in seven out of 10 agreed sales in the Lancashire seaside town.
The housing market has been booming since the summer, thanks to a combination of pent-up demand after the end of the first lockdown and Chancellor Rishi Sunak’s decision to temporarily halt stamp duty on all properties up to £500,000.
Investors are required to pay a 3% stamp duty surcharge on second homes worth more than £40,000, which has remained in place during the stamp duty holiday, but landlords have still been able to reduce their overall bill.
Homebuyers wanting to take advantage of the holiday have been warned that high demand for mortgages and coronavirus restrictions have created delays in the purchase process, with mortgage approvals hitting a 13-year high this autumn.
Hamptons estimates that landlords will pay £365m in stamp duty on house sales agreed between September and November, provided the deals are completed before the end of the tax holiday on 31 March 2021.
However, this figure could rise by 20%, or £74m, if those purchases miss the deadline, and if the stamp duty holiday is not extended by the chancellor.
The average price paid for a property by an investor in November was £180,000, which is around £80,000 less than the average amount paid by an owner-occupier.
This means that the average cost of missing out on the tax break would be £1,100, according to Hamptons researchers.
A typical investor who is liable to pay the surcharge would see their stamp duty bill rise from £5,400 to £6,500 if they fail to complete their purchase before the deadline.
A record number of purchases by landlords were in cash, accounting for just over half (51%) of properties bought, a sign that experienced investors are looking to benefit from reduced stamp duty bills, said Aneisha Beveridge, head of research at Hamptons.
“With over half of investor purchases made in cash during November, those taking advantage of the holiday are disproportionately larger investors expanding portfolios rather than new investors starting out. And with landlords also making up a rising proportion of sellers, in many cases, larger landlords are buying homes from smaller landlords,” Beveridge said.
During 2020, investors will have bought 134,000 homes, a slight increase from 133,000 in 2019.
This is despite the coronavirus pandemic, which brought the housing market to a standstill for several weeks in the spring.
Blackpool was the most popular local authority area for investors, followed by St Helens in Merseyside (where investors made 50% of property purchases), Liverpool (39%), Calderdale in West Yorkshire (36%), and Nottingham (35%).
London did not feature in the top 10, although Lewisham, in the south-east of the city, took top spot in the capital, where 20% of property sales were agreed with investors.
Rightmove’s analysis of its own listings for January suggests demand in the rental market is 14 per cent up on a year earlier – just as supply is precisely 14 per cent down.
The website states that the market, both for rentals and sales, remains remarkably buoyant, despite this being a traditionally slower period as landlords and tenants recover from Christmas.
Visits to the site last month – from prospective renters and purchasers – were up per cent on January 2020 and time spent on Rightmove soared 44 per cent.
The total of prospective buyers contacting agents was up seven per cent on January last year, and those enquiring about a property to rent rose 14 per cent.
“It’s clear that more people than ever before used the new year as a chance to start thinking about moving home, despite all of the challenges and worries that came with January, but we are seeing the effect of lockdown on the number of properties coming to market” explains Rightmove’s director of property data Tim Bannister.
The latest rental market snapshot from ARLA Propertymark – using lettings agents’ data from December – shows the number of new prospective tenants fell slightly at the end of last year to an average of 64 per branch from an average 65 in November.
In terms of supply, the number of properties managed per branch fell five per cent from 214 in November to 204 in December.
The number of landlords selling properties remained the same as November at four per branch in December. Year-on-year this is the same figure as during December 2019.
This rental demand vs supply deficit sits well for buy-to-let landlords in 2021.
For many years the Government has indicated it would like to see the UK’s private rented sector ‘professionalised’. That meant more, large scale landlords funded by pension scheme money and companies with a long-term view providing consistent service to tenants, and fewer private landlords with just one or two properties in their ownership.
The reduction of tax reliefs available to individual landlords has spurred this transition, encouraging hundreds of thousands of smaller time landlords to sell out while companies have increasingly backed large build to rent projects.
In 2019 there were estimated to be 2.66million private landlords in the UK, according to a report released in February by Hamptons International, some 222,570 fewer landlords than the number recorded in 2017.
Meanwhile, one of the UK’s largest corporate investors into British homes, Legal & General, estimated the build to rent sector was worth £10billion in 2019 and claims it is set to grow by a further £200million.
This week, L&G launched a dedicated business focused on delivering 1,000 new homes for rent in suburban locations across the UK.
It is just the latest in a string of this type of announcement, illustrating companies’ conviction that tenant demand for purpose built rental accommodation is strong and will continue to grow. But is build to rent the future of British renting and a game changer for those invested in traditional buy-to-rent?
And what do tenants get from this new generation of corporate landlords? Let’s takes a look.
What is Build to Rent?
UK renters increasingly have their pick of luxury properties, which landlords claim offer tenants a ‘whole new experience’ – but are renters really getting better service?
The growth of purpose-built high spec rental accommodation is largely down to build to rent schemes which have created a plethora of new apartments and houses specifically designed for renters based in cities.
Richard Berridge, head of strategy and enterprise at the online letting agent Howsy, explains that UK Build to Rent has been modelled on the ‘multi-family’ housing equivalent in the United States, which now accounts for nearly 47 per cent of the rental sector there.
Landlords are corporate investors such as pension funds and insurance companies, and partner with house builders and developers to offer a whole host of benefits including private gyms, swimming pools, roof-top bars, sports pitches, massage treatment rooms, a 24-hour concierge service and laundry collection.
Providers include Quintain, which owns large swathes of Wembley Park in London, Moda Living and Apache Capital, which are specifically focused on delivering premium apartment blocks across the UK’s regional cities, and Sigma Capital, which tends to build and own single-family homes.
Why the rise in full-service rental accommodation?
In 2012 the government set about encouraging institutions and corporations to invest in the private rental sector.
According to Berridge, corporate investors are attracted to build to rent by the opportunity to diversify their portfolios with rented residential property, while securing capital growth and reasonably stable yields from rent.
Savills reports the build to rent sector has grown by 362 per cent over the past five years, with 50,800 completed build to rent homes in the UK and a further 121,200 homes planned or under construction.
When completed, the property agent calculates build to rent will account for 3 per cent of the private rental sector.
What are the benefits for tenants?
Tenants opting for purpose-built rental accommodation will on average pay a premium of 11 per cent, according to recent analysis by property consultancy, JLL.
Berridge explains: ‘Build to rent is very focused on creating something distinct from the private rental sector in terms of the quality of the homes and the quality and responsiveness of their management.
‘It is looking to address all the things that are seen by many to be broken within the private rental sector.
‘Build to rent schemes were the first entities not to charge tenant fees for instance, to waive deposits, to allow pets and permit tenants to paint and decorate their apartments as they wish. The aim is for tenants to feel like it’s their home.’
A spokesman for Moda Living, a build to rent provider currently operating in Manchester, said: ‘In contrast to many amateur landlords, we genuinely care about our tenants, both from a health and wellbeing perspective, but also in offering secure tenure and flexible, dynamic rentals with no deposits and no fees.’
Another advantage of purpose-built rental accommodation for tenants is the added security it can promise.
‘The great thing about build to rent is your landlord isn’t suddenly going to ask you to leave without any reason via a section 21 notice,’ claims Howsy’s Berridge.
‘The investment horizons for these investors are 30 to 40 years away and so they want to keep all their tenants for as long as possible.’
L&Q, another of the UK’s biggest providers of build to rent homes, promotes the long-term nature of the tenancies it offers.
‘A key benefit to renting from a long-term investor in housing like L&Q is the stability and peace of mind it offers tenants who can feel reassured they can stay for as long as they wish,’ says a spokesman.