Now is the perfect time to become a landlord

Cash buyers are swooping as surging rents and falling prices bring rising profits,

As mortgage costs rise, taxes climb and red tape piles up, thousands of buy-to-let landlords have been throwing in the towel. Many are selling up at a rate not seen in years, sending rents soaring as the market shrinks.

Yet for a select group of canny – and rich – investors, market conditions are quickly becoming the best in nearly a decade. Cash buyers are swooping on the buy-to-let market as rocketing rents and falling house prices bring surging profit margins.

Buy-to-let demand has boomed with yields forecast to hit their highest level for nine years – but only those buying mortgage-free can take advantage.

“We had a record month in January,” says Tim Coen, of the North Property Group, a buy-to-let specialist. “Our investor transactions were double what they were in December and double what they were the previous January.”

Rich buyers are piling into the market as rents soar, offering lucrative returns on investment at a time when property prices are falling.

“Rents are going through the roof,” Coen adds. “We are seeing rises of 15pc to 25pc on renewals. It is just crazy. The rental market is still on fire. We listed a property [to rent] the other day and we had a queue of people outside our office. Someone paid 12 months’ rent upfront and 10pc over asking.

“On purchase that property had a yield of 5pc. Now it is 7pc.”

Rents across the entire country jumped by 4.2pc in December, according to the Office for National Statistics, which was the biggest jump on record. Demand is still wildly out of kilter with supply in every region of the UK, according to the Royal Institution of Chartered Surveyors. Capital Economics expects rents to continue to accelerate, peaking at 5.3pc growth in the middle of this year.

At the same time, Capital Economics’s Andrew Wishart has forecast a 12pc peak-to-trough decline in house prices, meaning gross rental yields will rise from a low of 4.3pc in mid-2022 to 4.6pc in the first three months of this year. He expects gross yields will rise to 5.3pc in 2024 – the highest level in nine years.

Investors are taking notice. Rob Jones, of Property Investments UK, a buy-to-let specialist, said: “Our inquiries from buy-to-let investors are up 20pc compared with last year and are the highest level we have seen for the last five years.”

Cash buyers are driving the uptick in interest as they are untroubled by the rising cost of borrowing. The share of buy-to-let investors purchasing in cash rather than with a mortgage has surged from 40pc before the interest rate rises began in 2021 to 70pc today, says Jones.

Meanwhile, landlords with mortgages in their own name are being hammered. Tax changes phased in from 2017 to 2020 mean landlords can now only deduct 20pc of their mortgage interest costs from their tax calculation. As borrowing bills soar and rents struggle to keep pace, many landlords are facing tax bills and mortgage costs that outweigh rental income.

Landlords who own their properties in a company structure are still able to offset their costs and pay corporation tax rather than income tax. But moving properties into this structure is considered both a sale and a purchase in the eyes of the tax man, which means landlords must pay both capital gains tax and stamp duty. Many existing landlords are simply selling up.

The wave of sales from landlords exiting the market is also presenting bargains to new buyers. In January, 56.4pc of all homes sold to investors were bought for less than asking price, according to Hamptons. This was a jump of a quarter on last January.

Of those purchasing below the asking price, cash buyers received an average discount of 6.5pc – up from 5.9pc in December and far higher than the average of 4.5pc across all buyer groups. Isaac Odegbami, of Hamptons, says cash rich buyers have spied an opportunity to pick up bargains and “capitalised on the market uncertainty caused by higher rates”.

Investors are able to get big discounts because they typically target properties that need work and attract less demand from other buyers, says Odegbami.

Housebuilders are also keen to cut deals with buy-to-let investors as lower overseas demand, falling house prices and the end of the Help to Buy scheme in March hit sales. Landlords can receive discounts of up to 7pc on new-build properties, Coen says.

However, new investors will not be able to escape the growing regulatory burden. Michael Gove, the Housing Secretary, published a White Paper last summer outlining plans to scrap Section 21 “no-fault” evictions and make all tenancies open-ended.

MPS have warned that the Government risks “overwhelming” the court system and bringing increased delays to the eviction process.

A report by the levelling up, housing and communities select committee said that changing the grounds for eviction will “present a real risk that the current systems will be overwhelmed and there will be a logjam with lengthy delays before verdicts are reached”. The plan also poses a risk to the student rental sector, in which landlords need to be able to end tenancies in time for the next academic year.

A government spokesman said: “This government is committed to delivering

‘Rents are going through the roof. We are seeing rises of 15pc to 25pc on renewals. It is just crazy’

a fairer deal for renters and welcomes the work of the committee in this area.

“We will bring forward a Renters Reform Bill in this Parliament, abolishing ‘no fault evictions’ so that all tenants – including university students – have greater security in their homes and are empowered to challenge poor conditions and unreasonable rent rises.

“We are investing a significant amount of funding to improve waiting times in the civil courts, opening extra courtrooms and recruiting more judges.”

Ultimately, there are more landlords quitting the sector than joining.

“The number of existing landlords who are leaving means the supply may still recede, but there has certainly been a renaissance in cash buy-to-let investors and the environment is much better for those coming in,” says Jones.

The fact that the rental market is shrinking is in fact good news for the new landlords entering the market. Tenant demand remains extreme, which should keep rents buoyant.

“Properties that would have normally had a void period of a month or two are now empty for only a week,” says Jones. For those who can afford it, now is the time to get into buy-to-let.