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Why is There a Surge of Landlords Selling Their Portfolios?

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Investing in property is generally considered a smart thing to do. Across the UK, there are thousands of landlords with large property portfolios, which provides each of them with a full-time income.

However, with recent challenges in the housing market, there has been a surge of landlords selling their portfolios. But what is causing this rise in sales from some of the country’s biggest landlords – is it purely about finances, or are there other factors at play?

In the blog below, we’ve provided an overview of the UK property market in its current condition, and outlined what’s causing landlords to sell.

What are the current property prices in the UK?

The average price of a house in the UK varies depending on your location, as well as the size of the property, its condition, the lease length and plenty more.

In Wales, the average property sells for roughly £215,000, while in Northern Ireland, this figure is slightly lower at approximately £180,000. In Scotland, a typical house sells for around £195,000, and in England the average sale price is £310,000.

You will notice considerable variation in these figures, depending on the size of the property.

Furthermore, while there have been plenty of areas in the UK where house prices have risen, there are also lots of locations that have seen a decline. In Wales, the average property has decreased by 4% in value over the past year, and there are lots of towns in England that have experienced a fall, too, such as Reading, Dartford, Norwich, Liverpool, Stevenage and dozens more.

What is the current interest rate in the UK?

As of February 2024, the Bank of England’s interest rate is 5.25%. This has slowly increased over the past couple of years, to combat rising inflation. However, many economists expect that this interest rate will drop back down (to below 5%) by the end of the year. If this happens, mortgages will become more affordable and activity in the UK property market will hopefully increase.

How active is the UK property market right now?

According to Zoopla, the current level of house buying activity in the UK is 13% below the five year average. With that being said, some housing experts predict that this will rise slightly in the next few months, because Spring is typically the busiest season for property transactions. Activity may also increase if/when interest rates start to go back down.

What impact does the interest rate have on the property market?

When interest rates are higher, it makes it more expensive for someone to take out a mortgage. It also incentivizes people to save their money in a savings account, instead of spending it – and the combination of these two factors may reduce the number of people looking to take out a mortgage.

High interest rates are usually a response to rising inflation, which will usually result in the average citizen having less money to spend. This is another factor that reduces buyer activity.

By contrast, when interest rates are lower, mortgages are generally more expensive, and this can encourage people to start making offers on a house. Low interest rates also tend to coincide with house prices going up, since there is more competition on the market.

Low interest rates can also mean that inflation is not currently too high, and consumers may therefore have more money in their pockets as a result of this.

Is now a good time to sell a house?

The Land Registry says the average price of a property in the UK dipped by 2.1% between November 2022 and 2023. This means that if you have only bought your house in the past few years, then it is possible that it is less valuable now than when you bought it. Once you then factor in the costs of legal fees, estate agent’s commission and moving companies, you may end up making a lost.

On the other hand, the UK property market has still performed well over the past few decades. If a house was bought more than 5 years ago, it has almost certainly gone up in value, meaning that it can be sold right now at a profit.

Some landlords are choosing to sell to a cash house buyer, since the average person on the market has less available money (due to the cost of living crisis) and may therefore put in an offer lower than you were hoping for.

If you are a landlord with tenants living in situ, but you want to sell your tenanted property, then click on the link to read our webpage on this subject.

Why is there a surge of landlords selling their portfolios?

As we outlined further above in this blog, there are plenty of areas in England (and in the rest of the UK, too) that are experiencing price declines. In this scenario, landlords may want to ‘cut their losses’ and get out quickly before property prices fall even lower.

With the ongoing cost of living crisis in the UK, it is also becoming much more difficult for the average tenant to meet their monthly rent payment. If payments are consistently coming in late, or there are fewer potential tenants prepared to pay the amount that landlords are demanding, this presents a problem for the homeowners. In this instance, they may choose to sell the house so it is no longer their problem, and so they can cash in instead.

Plenty of landlords choose to reduce the size of their portfolio to decrease their stress, too. Interest rates and the property market have both been particularly volatile in recent years, and this fluctuation can cause stress for landlords.

Tax changes

The UK government has also introduced changes in taxation rules over the past few years. The introduction of higher Stamp Duty Land Tax rates for additional property purchases, such as Buy to Let houses, has deterred many potential landlords from entering the market.

Changes in the Capital Gains Tax rules have also impacted landlords, especially those with multiple properties. The reduction in the tax-free allowance and increased rates can significantly affect the profitability of property investments.

Another new piece of legislation introduced by the government is surrounding EPC ratings (i.e. the energy efficiency of properties). From 2028 onwards, houses must have a minimum rating of ‘C’ to be let out – and many landlords, instead of spending time and money updating the eco efficiency of their property, are choosing to sell it instead.

Houses of Multiple Occuptation (HMO)

There have also been tighter rules introduced for Houses of Multiple Occupation (HMOs) regarding the living space that is deemed acceptable. Once again, landlords that don’t want to make alterations to their properties are instead choosing to sell, rather than comply with the new legislation.

The rising interest rates in the UK also makes it far less attractive for a landlord to continue growing their portfolio, and buy more properties. Both residential mortgages and Buy to Let mortgages will be more expensive due to the higher levels of interest. Furthermore, those on variable interest rates may already be feeling the pain, and have therefore decided to sell off part of their existing portfolio to keep their finances in a strong position.

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