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A quarter of buy-to-let investors want to cut holdings – that's unsurprising

With the reliability of rental income under threat, more landlords are rethinking their investments
November 10, 2020

The appeal of the buy-to-let market can only be waning further. A fresh national lockdown is set to exacerbate pressure on personal finances and the ability of tenants to meet rent payments. The government’s decision to ban the enforcement of evictions until mid-January is understandable, but as arrears build, an increase in disputes between landlords and tenants next year is likely.

While most landlords have reached an agreement with tenants in hardship over rent payments, others pushed the button on eviction proceedings when the ban was lifted at the end of September. Yet there is a growing recognition among landlords that rather than pursuing tenants through the courts, they will likely have to stomach losses. “If these tenants are genuinely struggling to pay, then you can get judgement for arrears, but it’s not going to be worth the paper it’s written on,” says Samuel Lane, solicitor in Irwin Mitchell's real estate disputes team. 

Landlords giving tenants the now required six months notice - which remains in place until at least 31 March - are increasingly making commercial agreements with tenants rather than pursuing it through the courts, he says. That includes foregoing arrears, giving tenants their deposit back in full or one month rent-free, in exchange for vacating the property sooner. If an agreement is reached, it is usually within a month of notice being served.  

Yet if more landlords are faced with empty properties, that could well drag on rent levels across the UK. So far this year, a two-speed market has emerged, with rents in London declining 3.2 per cent during the third quarter versus an average rise of 0.7 per cent outside the capital, according to data from Zoopla. But, since the start of this year, the average monthly rate of rental growth has also been slowing outside London, compared with the same time in 2019. 

The departure of more investors from the market is likely to follow. A quarter of landlords surveyed by National Residential Landlords Association (NRLA) during the third quarter said they planned to sell some or all of their properties over the next 12 months. Of the membership surveyed, 46 per cent of portfolio landlords - those with 20 properties or more - said they were looking to sell at least one property over the next 12 months. 

The withdrawal of mortgage interest relief had already left some landlords questioning whether the returns justify staying in the market. “The additional challenges we have had this year have tipped a lot of people over into making that decision,” says NRLA policy director, Chris Norris. 

Whether landlords go through with the decision to sell their investments will partly depend on how far unemployment rates continue to rise and how unstable the income stream turns out to be. The phasing out of mortgage rate relief may have started an exodus, particularly among smaller landlords, but many more will likely decide that buy-to-let is more of a headache than it's worth.