An Insight into the UK's Landlords

An Insight into the UK's Landlords

With help from the biggest survey carried out to date, Tepilo takes a closer look at the makeup of the nation’s private landlord population.

Our rental market analysis

What makes landlords tick? Well, the biggest survey of UK landlords to date should help to tell us more. The research, carried out by Kath Scanlon and Christine Whitehead of the London School of Economics on behalf of the Council of Mortgage Lenders, has given an excellent insight into the hopes, dreams, motivations, profiles and plans for the future of the nation’s private landlords. 


The findings showed that individual landlords in the private sector – whether that’s landlords with buy-to-let mortgages or other landlords – are mostly embracing an “even keel” mentality. 


While almost half of all landlords have no mortgage debt whatsoever, a quarter of buy-to-let landlords with the biggest portfolios and highest incomes will be most negatively impacted by tax changes coming into force next year. 


As Paul Smee, CML director general, puts it: “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 hit by the changes in the treatment of mortgage interest and may choose to divest or moderate their property holdings,” he added. “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.”
Now to look at the findings in greater detail…


Out of the 2,500 landlords surveyed, nearly half (49%) owned all of their property outright, with absolutely no mortgage debt. However, 47% of the rented properties in the survey were reliant on a buy-to-let mortgage. Among these landlords, more than half had loan-to-value ratios on their total portfolio of below 60%. Just 1% of landlords had loan-to-value ratios of more than 90%.


One of the regular criticisms of landlords is that they money-orientated and taking housing stock away from other buyers. The figures, though, point to a slightly different story, with some 62% of landlords owning only a single rental property. Buy-to-let landlords, however, are more likely to have a multi-property portfolio. Slightly over half of buy-to-let landlords possess more than one property, with the average size of a buy-to-let portfolio standing at 2.7 properties. 


The data also suggests that smaller portfolios are becoming more common, with a clear change in the number of properties owned by buy-to-let landlords now and in 2004, the last time the CML conducted a similar survey of this size. 


As well as looking at how many properties landlords own and how many of them have mortgages, CML’s research also looked at how old the average landlord is. In general, landlords are an ageing breed, in much the same way as homeowners are. People with more financial security, more time on their hands (thanks to early retirement or shorter working hours) or those looking to fund their retirement are more likely to let out homes, which helps explain why landlords are now generally made up of people from an older demographic. 


This is something that has increased in the last decade or so. In the research carried out in 2004, just 24% of landlords were aged 55 or over. Today, that has shot up to 61%. Buy-to-let landlords tend to be younger than other landlords, but there isn’t much in it. 


One explanation for this is that the number of new investors entering the market has slowed. For example, back in 2004, 18% of buy-to-let landlords had purchased their first property within the last two years, in comparison to approximately 7% today. 


What, though, is the profile of a typical landlord? Well, they generally own property that is close to their own home and are just as likely to manage the property themselves as to employ the services of a managing/letting agent. 


The main motivations for becoming a landlord are as an investment for capital growth and income, to supplement other earnings or to help fund pension provision. People also increasingly see letting property as a preferential investment opportunity when compared to things like pensions and stocks and shares.

 

That said, some two thirds of landlords earn less than 25% of their household income from rent, with only 1 in 20 making a profitable full-time living from being a landlord. Close to a quarter of landlords originally started renting out property as a result of circumstances, while roughly 14% did so to provide a home for a relative or friend.

 

What’s more, over a third of landlords said they are presently offering leases of longer than 12 months on at least some of their properties. Other landlords say they don’t do this because they don’t believe the demand is there. 


As for what landlords earn – well, median annual gross rental income was £7,500, but the mean was considerably higher, sitting at £17,300. This, however, can be explained away by the fact that some landlords have very high rental incomes, which skews the average figure. 


Finally, what did the research reveal about landlords’ plans for the future? In many cases, landlords see property investment as a long-term project. Landlords who entered the market decades ago still remain active today. When it comes to growing portfolios, most landlords have modest aspirations about decreasing or increasing their stock over the next five years. Generally speaking, though, more landlords are looking to decrease the size of their property portfolios.


Most of the time, this reduction in stock is a planned exit and nothing to do with tax changes. In fact, only 21% of landlords pointed to the recent and upcoming tax changes as a reason for wanting to sell. Buy-to-let landlords take a slightly different approach, with 36% saying the tax changes will play a key part in their decision-making. Awareness of the tax changes among landlords was, however, very variable.  


Over the next five years, the vast majority of landlords anticipate their net income staying broadly the same or increasing slightly. When questioned about what their main solution would be if their cash flow situation worsened, only 16% of landlords said they would up rents for new tenants, while just 12% said existing tenants would witness a rent rise.

 
Overall, the findings are encouraging and offer a stable and reassuring picture for the years ahead, albeit with challenges and potential complications thrown into the mix.