There has been no shortage of commentary over recent years suggesting landlords are heading for the exit, buy-to-let apparently no longer works and the PRS is facing some sort of mass withdrawal of investment, yet the actual behaviour of landlords continues to fly in the face of all those takes.
The latest Hamptons analysis, for example, which uses Connells Group data, provides another pertinent example of this, because it shows landlords buying more recently, accounting for 14.1% of all property purchases across Great Britain in July, compared with an average of 12.4% across the year to date.
That does not look much like a group of investors collectively heading for the hills. Instead, it looks like something landlords have consistently told us they would do, which is to wait for the right opportunities and add to portfolios when the numbers make sense.
A price is only a price when somebody agrees to it
Some of the coverage of the Hamptons figures has focused on landlords supposedly ‘lowballing’ sellers, which seems an unnecessarily loaded description of what is, in reality, a normal part of any property market.
The data shows the average landlord paid 88.7% of the initial asking price in July, while 56% of investor offers were at least 10% below that original figure, up from 48% in June and 45% in July last year.
Importantly, sellers are increasingly accepting such offers, with 27% of investor offers at least 10% below the original asking price accepted in July, compared with 18% a year earlier.
There are two parties involved in every transaction and nobody is forcing a vendor to accept an offer. An asking price is exactly that, an asking price, while the eventual value of the property is decided when buyer and seller agree a figure they are both prepared to transact at.
It is also worth remembering that landlords will often be purchasing from other landlords, particularly where flats and existing rental stock are concerned, so presenting every discounted purchase as an investor taking advantage of an owner-occupier does not reflect the reality of this market.
LANDLORDS HAVE COSTS TO MAKE WORK
There is also a financial reason why landlords need to buy well, because the acquisition costs associated with investment property remain significant.
The stamp duty surcharge alone has changed the economics considerably. Hamptons has previously calculated that an investor purchasing a £350,000 property faces a £25,000 stamp duty bill, compared with £7,500 for a home mover and £2,500 for a first-time buyer.
Add higher mortgage costs, ongoing regulatory requirements and the normal costs of maintaining a rental property, and it should hardly be surprising that landlords are looking carefully at the purchase price and expected yield before committing.
After several years in which house price growth has been limited, there was always going to come a point when experienced landlords judged that certain properties, areas and property types represented better value again. That appears to be happening now.
THIS IS WHERE ADVISERS COME IN
For mortgage advisers, the really interesting part of these figures is not the size of the discounts being negotiated, but the rise in landlord purchasing activity itself. Landlords are not simply waking up one morning and deciding to buy another property without considering how they are going to fund it, and that creates a clear advice need.
Some will have cash available, but others may have significant equity sitting within existing properties and could use remortgaging to release some of that capital for the deposit on their next purchase. Others may be approaching the end of existing mortgage deals and want to look at their portfolio funding more widely before deciding what they can buy next.
This is therefore not simply a purchase opportunity for advisers. It can be a portfolio conversation covering existing borrowing, refinancing, available equity, future purchases and the type of property that might produce the returns the landlord requires.
DOING WHAT THEY SAID THEY WOULD DO
Perhaps the wider point is that professional landlords have become used to dealing with change. They have faced higher taxation, increased borrowing costs, considerable regulatory reform and repeated predictions that buy-to-let investment no longer stacks up, yet many have consistently said they would continue investing where they could find the right property at the right price.
July’s figures suggest that is precisely what some are doing. Nobody should pretend every landlord is expanding or that every property currently represents a good investment, because neither is true, but the idea landlords are simply leaving the sector does not fit comfortably with data showing their share of purchases rising above its year-to-date average.
For advisers, that should be the key message. Landlords are looking for opportunities, they are prepared to negotiate to make the numbers work and, when the right deal comes along, they are prepared to act.
The adviser who is already talking to them about their existing portfolio, available equity and future funding requirements should be well placed when they do.
