Ageing Landlords and the Buy-to-Let Investment Climate

Property experts have looked behind the buy-to-let curtain and discovered tens of thousands of landlords are due to retire with little prospect of younger investors taking their place.

Buy-to-let started around 20 years ago when banks and building societies developed special mortgages to support property investment.

But those pioneer investors are now reaching retirement age and planning to leave the market, according to research by London estate agent Hamptons.

The data suggests around 100,000 private landlords reach retirement age each year.

The number was higher in 2022, with 140,000 responsible for three-quarters of rental homes sold by landlords collecting their state pensions. Another 924,000 landlords are still in business despite passing the state pension age.

Investment gap

These retirement numbers are making a massive dent In a market comprising an estimated 2.75 million landlords owning around 5 million homes.

"These investors who bought when the sector was growing rapidly are increasingly likely to sell up and cash out. They leave behind a gap not being filled by new landlords entering the sector," says the Hamptons' report.

"While the tax and regulatory changes haven't driven a buy-to-let sell-off, they have stemmed the next generation of landlords. The number of new purchases by landlords has remained relatively muted. Millennials, who have struggled to get onto the housing ladder, have not been in a position to afford or consider purchasing a buy-to-let too."

The report notes that 45 per cent of homes sold by landlords in 2023 were bought at least 15 years ago - up almost a third since 2018, when the figure was 33 per cent.

Hamptons also suggest older landlords are not making enough money because they allow long-term tenants not to pay market-value rents to stay in their homes.

Age triggers retirement

The report adds: "While age tends to be the primary trigger for selling up, in many cases, the decision to sell has been compounded by lower-than-average returns, which higher interest rates have exacerbated.

"An investor who bought 20 years ago was achieving a gross yield of 4.3 per cent relative to their sale price, compared to a landlord buying today who is achieving 6.1 per cent.

"This implies that in many cases, these landlords are selling homes where long-term tenants were paying rents which have slipped below market rates."

Hamptons also point out that changes to property tax, higher mortgage rates and increased buy-to-let regulations have little impact on landlords' deciding to sell their investments.

"Demographics alone will push up the number of landlord sales over the next five years to reach a new peak," says the report.

"Many of the first buy-to-let mortgages were used to purchase new low-rise city centre flats, and it's these flats which form the largest proportion of sales by today's long-term landlords. Suburban London tops the list with 60 per cent of landlord sales in Redbridge owned for more than 15 years, followed by 59 per cent in Ealing, 58 per cent in Harrow, 55 per cent in Barnet and 53 per cent in Enfield."

Buy-to-let homes bought by landlords now reaching retirement age make up the most significant market share, while 51 per cent of buy-to-let mortgages were taken out between 1996 and 2007.

Buy-to-let investment FAQ

What is buy-to-let?

Buy-to-let is an investment strategy which allows landlords to buy private homes to rent out.

When did buy-to-let become popular?

Buy-to-let became popular with investors in the late 1990s when banks and building societies released specialist mortgages for investors. In addition, fast-rising house prices and regular cash flow from rents were attractive to investors.

Must landlords retire at the state pension age?

Landlords do not have to retire at the state pension age, but if rented homes need refinancing, they have fewer options than younger investors.

How do I find a buy-to-let mortgage?

Most buy to let lenders make products available through mortgage brokers, although many have product details and rates online.

Is buy-to-let worth it?

Interest rates and taxes are higher than when buy-to-let investment started two decades ago, but so are property prices and rents. So the test of whether buy-to-let is worth it is whether investors can get a better return on their money than the six per cent the property offers.