Older landlords are ‘retiring’ in their droves – and younger ones aren’t filling the gap
Older landlords are retiring en masse… and younger owner-occupied investors are not replacing them because of higher tax and mortgage rates
- Last year, a total of 140,000 landlords retired, accounting for 73% of all sales
- According to Hamptons, some 96,000 landlords will turn 65 next year
- Demographic trends will push landlord sales to a new high within the next five years
Aging homeowners are selling out in droves, new investors are unable to fill the gap, according to new analysis.
About 140,000 landlords “retired” last year, accounting for nearly three-quarters of all real estate sales by buy-to-let investors, according to the Hamptons real estate agency.
It says this figure is likely to continue to rise in coming years, with around 96,000 landlords turning 65 each year in the UK.
Percentage of Landlords by Age: Only 15% of investors eligible to rent are under the age of 45 (figures are weighted by the number of leases they have)
The latest government survey of landlords estimates the average age of the average buy-to-let investor at 59, with only 15 percent under 45.
It’s mainly these older investors who are leaving the market, according to Hamptons, many of whom were early adopters of the first buy-to-let mortgages launched in 1996.
This means that these landlords made many purchases 15 to 25 years ago and still make up the majority of private rental properties in the UK.
Hamptons estimates that just over half of today’s outstanding buy-to-let mortgages were taken out between 1996 and 2007.
It is this cohort of aging investors who bought when the industry was booming that will now increasingly sell and cash out.
Veterans: 45% of homes sold by landlords so far this year were purchased at least 15 years ago, a figure that has risen every year since 2018 when it was just 33%
In fact, nearly half of the homes sold by landlords so far in 2023 were purchased at least 15 years ago, a figure that has risen every year since 2018, when it was only a third.
This share is likely to continue to rise as more landlords retire after purchasing their owner-occupied home a few decades ago, creating a gap that is not being filled by new landlords entering the industry.
This is because today’s new landlords are unlikely to make as much profit as their predecessors.
On top of a wave of unfavorable tax and regulatory environment that has hit the industry since 2016, higher mortgage rates are now also weighing on landlords’ profit margins.
Newer investors who need to borrow to finance their purchases face high mortgage costs.
Cashing in: Landlords who bought shortly after the launch of the first buy-to-let mortgage in 1996 are retiring in increasing numbers
The average two-year mortgage for a landlord has risen from 3 percent to 5.62 percent in the past two years.
On a £200,000 interest-only mortgage, that’s the difference between paying £500 a month and £937 a month.
Add that to a 3 percent stamp duty surcharge when buying a second home, not being able to fully offset mortgage interest payments against rental income tax and higher capital gains tax bills, and there’s not much to appeal to many right now.
Aneisha Beveridge, head of research at Hamptons, said: “Two decades after the birth of buy-to-let mortgages in the late 1990s, early investors are starting to sell.
“This means that by demographics alone, landlord sales will rise over the next five years to reach a new high.
“This would likely happen regardless of tax or regulatory changes introduced since 2016, and the more recent environment of higher interest rates.
“But while the tax and regulatory changes have not led to a buy-to-let sell-off, they have stalled the next generation of landlords.
‘The number of new purchases by landlords has remained relatively low. Millennials, who have struggled to move up the housing ladder, have been unable to afford or consider buy-to-let as well.”
