The last couple of years have seen a huge number of changes aimed at the buy-to-let market, from the introduction of a higher rate of Stamp Duty for investment purchases to changes in the tax relief on offer.
Just to add to the fun, last year the Prudential Regulation Authority introduced new rules covering the way buy-to-let mortgages are underwritten.
The accepted thinking has been that these changes would mean a ‘professionalisation’ of the landlord sector – it would be harder to make the sums add up if you’re a small-time landlord with just one or two properties, but the people for whom property is their entire profession would be better placed to ride out these changes and continue to do well.
Landlords: how to slash your buy-to-let costs and fees
Flooding the market
That’s why there have been plenty of warnings about a swell of amateur landlords selling up, and potentially flooding the market with properties.
Recent research from the National Landlords Association, for example, suggested that as many as 380,000 landlords were looking to reduce the size of their portfolio over the coming year.
It isn’t one-way traffic though – as the amateurs sell up, the professionals step in, or at least that’s how the thinking goes.
It appeared that this transition was already beginning last year – research by Countrywide found that the number of landlords active in the market had fallen by 154,000 since 2015, though the number of rental properties had jumped by 171,000 over the same period.
That has seemingly been reflected in the mortgage market too, with the sharp growth of limited company buy-to-let.
This is where you purchase and own properties through a company vehicle, rather than as an individual, and is a popular move for full-time landlords.
But is this really the death of the first-time landlord?
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Record numbers of mortgage deals
It’s notable that mortgage lenders are actually increasing the number of options first-time landlords can choose from.
Just last week Accord announced that it was expanding its range of deals for first-time landlords, having only entered this area of the market a year ago.
Chris Maggs, commercial manager at Accord, explained: “The buy-to-let market has undergone some significant regulatory and tax changes in the past three years, which have undoubtedly resulted in a more challenging environment for landlords.
"However, it’s clear that there is still appetite for first-time investment in the sector."
Accord isn’t the only one either. According to financial information website Moneyfacts, the number of deals now available to first-time landlords has hit a record high.
Back in July 2016, the number of products open to first-time landlords stood at 929. Today that has jumped to 1,268.
Demand is returning among would-be investors
Greg Cunnington, director of lender relationships at mortgage broker Alexander Hall, says that the majority of his firm’s buy-to-let business is with what would be classed as amateur landlords, and says that they have seen an upturn in interest in buying investment properties.
David Sheppard, managing director of broker Perception Finance, said that while the market may be tougher for those looking to get into buy-to-let, “if well researched and done right it can still be a good income stream”.
David Smith, policy director at the Residential Landlords Association, pointed out that where some landlords are opting to sell, it may be other landlords who are choosing to buy, rather than first-time buyers.
He added: “If you’re a first timer entering the market, you’re more likely to want to go for a property that’s been rented before.”
It obviously isn’t all rosy though, as Chris Norris, director of policy and practice at the National Landlords Association, pointed out.
Noting the trade body’s latest research, he said: “Larger portfolio landlords are more likely to have sold than expanded over the last three months, meaning the stock is there for potential new investments.
"However, property sales for single property landlords far outstripped new purchases over the same period, which should serve as a warning sign for anyone considering their first buy to let.”
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What do we want the landlord sector to look like?
So if first-timers are returning to look at investing in property, is that a good thing?
Personally, I don’t really buy the idea that a market dominated by professional landlords, with enormous portfolios, is automatically an improvement.
The very nature of these large portfolios means that responsibility for handling problems that arise on a day-to-day basis may be outsourced to letting and managing agents.
It’s fair to say that these firms do not always have a great reputation for offering tenants a good service.
In contrast, small-time landlords may be more likely to take a more hands-on approach.
>We need to keep driving up standards in the rental market – whatever your thoughts on the Government’s drive to increase homeownership, the rental market will remain a hugely important sector.
But I’m not convinced that the key is pushing out small-time landlords to the benefit of those with significant portfolios already.
Besides, there needs to be some sort of entry path for the landlords of tomorrow, so it’s important that there are plenty of lenders active in offering the finance they will need to help with their purchases.