Retirees driving sales of buy-to-let properties

Landlords who bought soon after the launch of the first buy-to-let mortgage in 1996 are retiring in increasing numbers, according to new analysis from Hamptons.

With the average landlord turning 60, it’s predominantly these older investors who are leaving the market, with Hamptons estimates suggesting that around 140,000 landlords retired in 2022, accounting for nearly three-quarters (73%) of all landlord sales.

This figure is likely to continue rising over the coming years with around 96,000 landlords turning 65 each year across Great Britain. This in addition to the almost one million landlords (924,000) who are already over the age of 65. Over the last 12 years between 2010 and 2022 Hamptons estimates the number of landlords retiring annually has doubled as their demographic ages.

The purchases made by these landlords 15-25 years ago following the introduction of the buy-to-let mortgage still make up the majority of privately rented homes in Great Britain. Just over half (51%) of today’s total number of outstanding buy-to-let mortgages were taken out between 1996 and 2007. And it’s this cohort of ageing investors who bought when the sector was growing rapidly that are now increasingly likely to sell up and cash out, leaving behind a gap which is not being filled by new landlords entering the sector.

The ageing landlord profile has played out in recent investor sales. 45% of homes sold by landlords so far this year were bought at least 15 years ago, a figure which has risen in each year since 2018 when it stood at just 33%. This proportion is likely to continue rising as more landlords reach retirement having bought their buy-to-let a couple of decades ago.

Many of the first buy-to-let mortgages were used to purchase new low-rise city centre flats and it’s these flats which form the largest proportion of sales by today’s long-term landlords.

Suburban London tops the list with 60% of landlord sales in Redbridge having been owned for 15+ years, followed by 59% in Ealing, 58% in Harrow, 55% in Barnet and 53% in Enfield.

While age tends to be the primary trigger for selling up, in many cases the decision to sell has been compounded by lower-than-average returns, which in turn have been exacerbated by higher interest rates. An investor who bought 20 years ago was achieving a gross yield of 4.3% relative to their sale price, compared to a landlord buying today who is achieving 6.1%. Hamptons says this implies that in many cases, these landlords are selling homes where long-term tenants were paying rents which have slipped below market rates.

Aneisha Beveridge, head of research at Hamptons, said: “Two decades on from the birth of buy-to-let mortgages in the late 1990s, early investors are starting to sell up. This means that demographics alone will push up the number of landlord sales over the next five years to reach a new peak. This was likely to happen irrespective of the tax or regulatory changes introduced since 2016 and the more recent higher interest rate environment.

“But while the tax and regulatory changes haven’t driven a buy-to-let sell off, they have stemmed the next generation of landlords. The number of new purchases by landlords has remained relatively muted. Millennials, who have struggled to get onto the housing ladder, have not been in a position to afford or consider purchasing a buy-to-let too.

“While house price growth continues to slow, rents keep moving in the opposite direction. Tenants find themselves with a little more choice than they did last year, which has been reflected in a 10% increase in the number of tenants moving home. However, the number of rental homes on the market seems to have found a new normal at nearly two-thirds below pre-pandemic levels.”