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CML research reveals what makes landlords tick

Wednesday 04 January 2017

New research undertaken for the Council of Mortgage Lenders (CML) has gathered data for the largest survey of UK landlords to date. The survey looked at a number of subject areas and revealed significant insight about landlord profiles, motivations, and future plans.

How many landlords have mortgages?

Of the 2,500 landlords surveyed, the study found that around half have no mortgage debt at all with 49% of respondents owning all their property outright. This figure was unexpectedly high given that the government 2010 Private Landlords Survey reported that 77% of landlords used a buy-to-let mortgage to acquire their rented property.

The buy-to-let housing scheme was introduced in the 1990’s and allowed landlords to purchase or refinance a residential property which is then let to tenants. Many landlords still use the scheme today, 20 years on and around half of rented properties in the UK are owned by buy-to-let landlords.

How many properties do landlords own?

62% of landlords own only a single rented property, whereas buy-to-let landlords are more likely to have a multi-property portfolio.Over half of buy-to-let landlords own more than one property, with the average buy-to-let portfolio size being 2.7 properties.

Portfolio size (units) of BTL landlords, 2004 and 2016

There has been a clear shift towards smaller portfolios among buy-to-let landlords since 2004 when CML undertook similar survey research.

CML Chart

Typical landlord profile

The typical landlord is over the age of 55; with 61% of those surveyed being over this age, compared to only 24% back in 2004 – that is a massive 37% difference.

They tend to own properties close to their own home and were split between managing the property themselves and using a managing agent.

Nearly a quarter of landlords entered the market incidentally due to circumstances, while around 14% originally intended to provide a home for a relative or friend. Others were motivated by the idea of a pension provision or future investment.

The average annual gross rental income was between £7,500 and £17,300 as there were some landlords with very high rental incomes.Only 5% of those surveyed claimed to make a profitable full-time living from being a landlord.

Landlords’ plans for the future

So what does the future hold for landlords? Whilst appearing to take a long-term view of their property holdings, there does appear to be a modest drift towards the disposal of some of their assets with many landlords looking to reduce their property portfolios over the next five years.

Over the next 12 months, 6% of landlords expected to condense their portfolios, while 14% planned to do so over the next five years. Buy-to-let landlords were however slightly less likely to commit to reducing their property holds, with 5% saying they expected to over the next 12 months and 11% over the next five years.

Generally, the reasons given by landlords for looking to reduce their holdings were as part of a planned exit. Only 21% cited tax changes as part of their reason to sell. Unsurprisingly, however, among buy-to-let landlords tax featured as an element in their decision making for 36%, compared to only 13% of other landlords. Overall awareness of the various tax changes was extremely variable.

The quarter of buy-to-let landlords with the largest portfolios and highest incomes will be negatively affected by tax changes which may be the key influence for those planning to reduce the number of properties they hold.

The survey results suggest that targeted measures aimed at buy-to-let landlords may impose significant burdens on them without necessarily resulting in commensurate influence on the behaviour of the private rented sector as a whole.

Paul Smee, CML Director General summarised:

“While the overall findings are encouraging and offer a reassuring picture of relative stability, there is a certain irony in the researchers' conclusions that the landlords who will be most affected by the government's tax changes are those at the most professional end of the sector - those with large, leveraged portfolios.

“These landlords will be particularly hard hit by the changes in the treatment of mortgage interest and may choose to divest or moderate their property holdings. Given the government's longstanding interest in professionalising the sector, policymakers will need to be closely attuned to the risk of unintended consequences and, indeed, own goals.”