‘Very real risk’ landlords could flee buy-to-let sector as profits nosedive

Property Industry Eye is reporting on research by Savills’ the suggests ‘that buy-to-let profits have plunged to their lowest level since 2007, and their is a “very real risk” that landlords will leave the PRS in their droves as a consequence.’

The full report can be see here, and states that ‘Investors’ average net profits fell below 4% on average in the first quarter of 2023, marking a dramatic shift in finances for mortgaged buy-to-let buyers, the company said.

Average net profits for landlords are now at their lowest since 2007, due to the impact of 12 successive increases to the Bank base rate, exacerbated by restricted tax relief.’

Lucian Cook, head of residential research at Savills, commented: “Following a boom period for buy-to-let landlords, 2023 marks a turning point for Britain’s private rented sector. Between 2014 and 2021, landlords on average were making ‘year 1’ cash profits of 23% of rental income, but successive interest rate hikes have seen this figure plummet to under 4% this year.

“The incoming Renters Reform Bill, abolition of the Assured Shorthold Tenancy, and increasing EPC regulations, are expected to add to investors’ caution as landlords now face the prospect of having to invest to bring their properties up to a minimum EPC, further eating into profits

“There is a very real risk that landlords will exit the sector, particularly those with high levels of borrowing, putting increased pressure on a sector where demand significantly outweighs supply in many locations.”

Despite growing tenant demand, landlords’ ability to continue to make a margin will depend on debt exposure, according to Cook.

He continued: “Debt exposure of mortgaged buy-to-let landlords will play a critical role in the future shape of the private rented sector. Viability will be a real issue for smaller landlords with higher levels of debt who are coming to the end of their fixed rate, while larger, wealthier landlords are in a much better position to benefit from the rental growth seen in the period post pandemic.”




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