Anyone invested in the buy-to-let market knows it is changing, as taxes go up and regulation grows. But what are landlords planning to do as a result?
Research from Octopus Choice has found that buy-to-let owners are divided on how to approach the future. A survey of 1,000 UK landlords in July 2018 revealed that 44% are planning to sell part or all of their portfolio in the next 5 years, against 38% who want to maintain their holdings and 18% who plan to increase theirs.
But these overall figures doesn’t tell the full story. The survey also revealed demographic and geographic divides that show how the buy-to-let market is becoming one in which you have to shop carefully to take home a healthy return.
Who’s selling up?
Unsurprisingly, the gulf in returns between different parts of the country is encouraging investors to vote with their feet. In Scotland – where research by Octopus suggests landlords can expect an average annual return of 8.82% if they sold the property eight years after purchase – just 28% said they are planning to sell at least part of their portfolio. Whereas in London, where investors on average are likely to lose money based on the last 12 months of performance, 53% are making plans to sell up.
If location is one factor driving investment decisions, age is another. According to our survey, millennial landlords are by some distance the most likely to reduce their portfolios in the near future.
Among 18-34 year-olds, nearly two-thirds (65%) said they were planning to sell some or all of their buy-to-let holdings, with over a quarter (26%) intending to exit altogether. That compares to 43% of 35-54 year-olds and just 29% of over-55s.
Our survey reinforces that younger landlords are the most pessimistic demographic about the buy-to-let market. Over three quarters (76%) of 18-34 year-olds said they “have regrets about tying [their] money up in bricks and mortar”, compared to just 10% of over-55s. While 80% believe that “investing in buy-to-let will become less worthwhile in the coming years”, compared to 66% of 35-54 year-olds and 44% of older investors.
What is driving this disenchantment among millennial investors? The burden of day-to-day management is one factor, with 81% of the age-group agreeing that “managing a buy-to-let property has become a hassle.” 18-34s were also the most likely to attribute ‘falling house prices’ and ‘nightmare tenants’ as reasons for making plans to sell.
While baby boomers were most likely to be motivated by a ‘change in personal circumstance’ to think about selling up, it seems that younger investors are those responding most decisively to changes in market conditions, which threaten to undermine rental yield and long-term capital growth.
On the other hand, older investors and those in areas with strong house price growth are tending to back their investments. Which goes to show, buy-to-let is not so much one market as many, where local factors and individual needs are driving investment decisions.
So, what next?
Overall, 69% of our survey sample agreed that buy-to-let will be ‘a lucrative investment in five years’ time’. If you know where to look, and are happy to take on a the responsibilities of being a landlord, then it’s a market that still carries significant opportunity.
For those thinking of selling up, however, there are alternatives – and it doesn’t mean having to get out of the property market altogether. Property-backed peer-to-peer lending, for example, allows people to co-invest in loans that are secured against property and target a share of the interest. It’s a way to keep a foot in the property market, without all the hassle of being a landlord.
Of course, your capital is still at risk – it is possible you’ll get back less than you put in. And remember, investments could be affected by a material downturn in the property market.
To find out more about the attitudes of landlords towards the buy-to-let sector, take a read of our report, Buy-to-let Britain: a divided nation.