New data released by renowned lettings agency Savills sheds light on a potential challenge looming over the buy-to-let sector—ownership demographics. According to the agency’s research team, numerous landlords who entered the market during the buy-to-let boom of the early 2000s are now approaching retirement age or have already retired, posing a risk to the future availability of rental properties.
Presently, there are approximately 1,911,000 buy-to-let properties owned by 620,000 landlords aged over 65. Additionally, landlords aged between 55 and 64 possess an additional 1,982,000 properties. This aging demographic raises concerns about a potential scarcity of rental housing stock in the coming years.
While current tenants may benefit from enhanced security, Savills’ research chief, Lucian Cook, warns that the combination of factors at play could limit the choices available for prospective tenants. With a reduced number of properties on the market, landlords are more likely to favour tenants with higher incomes and stable employment. Unfortunately, this inadvertently disadvantages lower-income households, unless measures are implemented to boost the supply of rental properties.
Cook also highlights another distressing trend: average net profits for landlords have reached their lowest levels since 2007. This decline is primarily attributed to the impact of twelve successive increases in the Bank of England base rate, further compounded by restricted tax relief.
The research chief notes, “2023 marks a turning point for Britain’s private rented sector, following a boom period for buy-to-let landlords.” Between 2014 and 2021, landlords typically enjoyed “year 1” cash profits equivalent to 23% of rental income. However, the consecutive interest rate hikes have caused this figure to plummet to under 4.0% this year.
Moreover, the upcoming Renters Reform Bill, the abolition of Assured Shorthold Tenancies, and the growing energy performance certificate (EPC) regulations are anticipated to foster greater caution among investors. Landlords now face the prospect of investing in their properties to meet the minimum EPC requirements, further eroding their profits.
Cook cautions, “There is a very real risk that landlords will exit the sector, particularly those with high levels of borrowing, putting increased pressure on a market where demand significantly outpaces supply in numerous locations.”
The data provided by Savills underscores the urgent need for proactive measures to ensure a healthy and sustainable rental market. Encouraging new investors, incentivizing property development, and offering support to existing landlords could help mitigate the potential consequences of the aging landlord demographic. Failure to address this issue may result in a more limited selection of rental properties, exacerbating the housing challenges faced by vulnerable and low-income households across the country.