Brokers have reported “an enormous uptick in enquires from tenants who have been given first refusal to buy the property they’re renting”.
They say increasing numbers of amateur landlords are starting to head for the exit ahead of the new EPC rules due to be introduced in 2025, in a rising rate climate that’s squeezing margins and at a time when property prices remain high.
Lewis Shaw, founder of Mansfield-based Shaw Financial Services: “Over the past six to eight weeks, we’ve seen an enormous uptick in enquires from tenants who have been given first refusal to buy the property they’re renting from their landlord, often with an element of gifted equity. Off the back of that, I’ve spoken to several brokers heavily involved in the buy-to-let space and they’re seeing lots of their landlord clients looking to offload the parts of their portfolios that are either low yielding or have an EPC below C.
“We are arguably witnessing the start of the Great Landlord Sell-off as buy-to-let becomes a less attractive investment due to tax changes in interest relief, stamp duty land tax and new EPC rules due to hit in 2025. Increasingly, amateur landlords are deciding to call it a day, sell up at a time when prices are at an all-time high and walk off into the sunset. For buy-to-let landlords, selling to their tenants makes perfect sense: they can ask agents what the market value of the property is and then sell directly to the tenants to avoid any expensive agents’ fees, not to mention the hassle of getting involved in chains.
“Moreover, any reduction in price that tenants can use towards their deposit essentially reduces the capital gains tax payable by the landlord on sale. When you work out the average cost of an estate agent, the reduction in price ends up reducing the capital gains liability almost equal to the fees for selling. A key concern, of course, is that with dwindling rental stock, this could put immense pressure on tenants as when supply reduces prices rise, and the market is already red hot.”
Ian Hewett, founder of The Bearded Mortgage Broker: “I have had a few of these cases lately, as it’s an increasingly attractive option for landlords who want to exit a market where margins are shrinking and one that is becoming increasingly wrapped in red tape. Some tenants are now in a position to borrow with more options in the mortgage market to assist them, such as family support mortgages and the like, and they are in pole position if their landlords approach them about a sale. However, the knock-on effect of this landlord exodus is going to cause some serious issues going forward given the lack of rental stock available and inflated prices, putting tenants under immense financial pressure at a time when every other bill is soaring.”
Graham Cox, founder of the Bristol-based broker, SelfEmployedMortgageHub.com: “There’s no doubt landlords are starting to feel the squeeze. While the mortgage interest changes can be largely mitigated by investing via a special purpose vehicle company, landlords still have to pay higher stamp duty and, from 2025, will need to make their rental properties EPC grade C or higher. Some landlords will also be paying the gas and electric bills for tenants. Then there’s the prospect of increasing void periods due to the cost of living crisis, much higher interest rates when they come to remortgage and the recent legislation to prevent no-fault evictions. Given all that, it’s little wonder landlords are jumping ship and cashing in their chips. Their existing tenants are a quick and easy sale.”
Imran Hussain, director at Nottingham-based Harmony Financial Services: “The buy-to-let market is currently undergoing a profound transformation. Dinner party landlords are now looking at the forthcoming EPC requirements and are deciding to sell at arguably the top of the market. This does give an opportunity for some tenants to purchase but I have also spoken to a number of tenants for whom, due to their credit history, purchasing a property will not be on the cards for a few years yet. Let’s also not forget that less supply in the rental market will only push rents up unless more social and council housing is built, which will stretch many tenants to breaking point.”
Paul Neal of Derbyshire-based Missing Element Mortgage Services: “Tenants being given first refusal is definitely becoming more and more common, as it’s an easy way for landlords to offload properties and save some cash on the transaction. It’s also a welcome break for a small percentage of Generation Rent who need all the help they can to get onto the ladder. But as more rental stock leaves the market, rents will rise further and they are already sky high.”
Mike Staton, director of Mansfield-based Staton Mortgages: “Personally, I feel the buy-to-let market is still well and truly alive. I have accumulated a big portfolio of BTL clients over my career and only one of them has sold their properties during the past three years. For me, rental valuations are increasing significantly and although interest rates are increasing, these costs will inevitably be passed on to the tenant through rent. This will then make it more difficult for tenants to get onto the property ladder as the disposable income will not be there to save for a deposit. For me, the landlord market is still fruitful and will continue to remain so, however with the new legislations coming into play, such as licensing and EPC guidelines, I think we will see the death of the “cowboy” who has no intention to care for the wellbeing of their tenants and just wants to make a quick buck. That will not be a bad thing.”
Rhys Schofield, Managing Director at Peak Mortgages and Protection: “The buy-to-let market is creaking. Rate rises have squeezed margins, the impending law change on EPC ratings gives a clear deadline to either bring the 75% of properties not at standard up to standard or sell up. The net result is that some landlords want out. The organised landlords now have ways to tackle the issue pro-actively, as Enable have launched a great home energy review product where they’ll come up with a list of work needed to bring a property up to standard. And whilst landlords sit on the equity from two years of bumper price growth, they can raise the capital to do the works and maybe even grow their portfolio further. In some cases, of course, landlords have their own concerns over the cost of living and cashing in to ride out the economic storm ahead is proving very appealing.”
Rob Peters, director of Altrincham-based Simple Fast Mortgage: “Landlords have taken a hammering over recent years through legislative and tax changes that have made holding a buy-to-let or two unattractive for many smaller investors. While change often brings opportunity, it is those landlords who are highly leveraged or who have properties producing a low yield that will look to consolidate part or all of their portfolio. While some landlords may say farewell to the BTL market altogether, for others this will simply be a restructuring exercise of selling off a portion of the portfolio to restructure the rest. Either way, we will undoubtedly see an increase in landlord to tenant sales over the coming months.”
Edward Checkley, managing director of London-based property finance specialists, Advias: “Low-interest rates typically made a personally owned buy-to-let either marginally profitable or just about break-even. Many landlords have therefore been of the opinion that house price growth may make the investment worthwhile as a pension pot. However, with increasing interest rates, lower rental yielding areas will create post-tax losses for many investors, making a sale a highly appealing exit. We generally only see limited company purchases now for buy-to-let property, with holiday lets being the exception to the rule.”