What does the chart show?
It shows the shrinking proportion of annual sales to buy-to-let landlords in Great Britain and London as measured by Hamptons International, an estate agent which has been collating data on landlord purchases, including cash buyers as well as those buying with a mortgage, since 2010.
Landlords are buying fewer homes than at any time in the past nine years. Compared with 2011, when they accounted for two in five homes purchased (18.7 per cent), they are now responsible for one in 10 (11.4 per cent) purchases in Great Britain.
Why are landlords buying fewer houses?
The regulatory climate began to turn seriously against buy-to-let investors around four years ago, as regulators and politicians grew worried that, in the event of a property market downturn, highly leveraged landlords might be forced to sell off homes at short notice, substantially worsening any correction.
So the government brought in a series of tax and regulatory measures designed to damp demand in the sector. The biggest change for landlords was the loss of a valuable tax relief on mortgage interest, phased out over four years from April 2017. For landlords with bigger mortgages, the change can determine whether a rental property is a viable as a profitable business.
A surcharge on stamp duty for second homes and buy to let was introduced in April 2016, putting an extra three percentage points on the charge paid by landlord purchasers. Another change included a requirement for landlords with four properties or more to have all of them assessed for viability by a lender when applying for a mortgage on a new addition to their portfolio.
Combined with a slowdown in house price growth — and price falls in parts of central London — the sector has visibly retrenched. UK Finance, which monitors demand for buy-to-let mortgages, recorded £9bn of new lending in 2018, a 15 per cent decline on 2017.
Which areas have seen the biggest exodus?
Hamptons said London had been hit particularly hard by the changes, noting a significant increase in the proportion of landlord sales in the capital as the gradual abolition of mortgage interest tax relief had eaten into landlords’ returns. “Tax relief is a more important benefit in expensive areas as landlords are more likely to have a higher level of debt,” said Aneisha Beveridge, head of research at Hamptons.
The proportion of homes sold by landlords in London rose from 17 per cent in 2017 to 19 per cent in 2018, while it remained unchanged at 16 per cent for the country as a whole, the agent said.
Monthly figures on net sales and purchases by landlords tell the same story: since the stamp duty surcharge on buy-to-let was introduced in April 2016, landlords have sold more homes than they purchased in every subsequent month, according to Hamptons.
Aren’t landlords just reacting like everyone else, showing caution as the economic outlook continues to look uncertain?
That is very much part of the story. The tax changes to landlords have come just as the wider housing market is stuttering, with the latest Nationwide index showing house price growth at a six-year low and other data pointing to falling transaction volumes in expensive areas such as London and the south-east as buyers reach the limits of mortgage affordability.
Not all landlords are equally vulnerable, however. Large-scale professional landlords with high levels of equity in a long-held portfolio of properties are better insulated from factors such as interest rate volatility and house price fluctuations — unlike amateur landlords with one or two often highly leveraged properties to their name.