National headlines are warning of a buy-to-let “plummet”, but are these attention-grabbing, doom and gloom stories a true reflection of the market?
“Concrete signs of a buy-to-let slowdown” and “Buy-to-let investing to plummet…” are just some of the headlines you might have been reading recently.
The evidence is based on some research that was compiled by Savills estate agency earlier this month, which analysed factors such as uncertainty over Brexit, mortgage interest rate rises and lack of new homes, in order to come up with a five-year property market forecast.
According to Savills, the number of buy-to-let investors with a mortgage is expected to drop by 27% over the next five years, from 75,000 in 2017 to 55,000 in 2022. The report puts this down to “the triple hit of extra stamp duty, restricted tax relief on their interest payments, and mortgage regulation”.
A closer look
However, shift the focus towards the increasing numbers of cash buyers, and the figures indicate that buy-to-let investors are not necessarily exiting the market but are looking to invest in different ways.
Cash buyers now make up around 34% of all property purchases, and research by Countrywide has shown that around two-thirds of buy-to-let sales over the past 12 months were made by cash buyers. The majority of the cash – £21bn over the year – came from landlords remortgaging their existing properties in order to release the funds to buy.
Countrywide’s research director Johnny Morris said: “Landlords have increased their housing wealth considerably over the last 10 years.
“This means cash purchases are steadily becoming a bigger part of the market. But a landlord buying with cash will often have a mortgage either on their personal home or other properties in their portfolio.
“Rising prices have allowed landlords to take equity out of both their personal or other rental homes to expand their portfolios,” he added.
The five-year forecast by Savills actually shows a 6% increase in cash buyers, from 400,000 in 2017 to 425,000 in 2022, and indicates that landlords will be looking to spend more of their cash in the high-yielding areas of the north, such as Manchester, Leeds and Newcastle.
By making cash purchases rather than buying with a mortgage, buy-to-let landlords can dodge some of the effects of the lending restrictions and tax changes that came into play this year.