New data produced by lettings agency Savills gives an indication of how the buy to let sector may be threatened by ownership demographics.
The agency’s research team says many landlords who have been active since buy to let took off in the early 2000s are now nearing or in retirement, which risks limiting the future supply of rental stock..
Some 1,911,000 BTL properties are currently owned by 620,000 landlords aged over 65, with a further 1,982,000 properties owned by landlords aged between 55 and 64.
“While existing tenants will benefit from greater security, a combination of factors means there is a risk that new tenants will have less choice. With fewer properties available, stock is more likely to be let out to tenants who are better paid, and in more secure employment, inadvertently hitting less affluent households unless measures are taken to increase rental supply” according to Savills’ research chief Lucian Cook.
He has also produced figures showing that average net profits for landlords are now at their lowest since 2007, due to the impact of 12 successive increases to the Bank of England base rate exacerbated by restricted tax relief.
Cook continues: “Following a boom period for buy to let landlords, 2023 marks a turning point for Britain’s private rented sector. Between 2014 and 2021, landlords on average were making ‘year 1’ cash profits of 23% of rental income, but successive interest rate hikes have seen this figure plummet to under 4.0 per cent this year.
“The incoming Renters Reform Bill, abolition of the Assured Shorthold Tenancy, and increasing EPC regulations, are expected to add to investors’ caution as landlords now face the prospect of having to invest to bring their properties up to a minimum EPC, further eating into profits
“There is a very real risk that landlords will exit the sector, particularly those with high levels of borrowing, putting increased pressure on a sector where demand significantly outweighs supply in many locations.”
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