Landlords are deluging the market with properties as they desperately try to sell up before yet more regulation and higher taxes come into force in coming months.
Estate agents suggest this could present savvy first-time buyers and home movers with a chance to bag a bargain from landlords keen to sell quickly. In some cases, buyers can shave up to 25 per cent off prices.
However, prospective buyers will need to tread carefully, as not all discounts are the steals they first appear, as these homes tend to need more work and renovations.
An onslaught of new rules and fewer incentives in recent years have made it increasingly difficult to make a profit from buy-to-let.
Landlords can no longer fully offset the interest they pay on mortgages against their tax bill.
They also pay an extra 5 per cent stamp duty surcharge when buying properties and they face growing bureaucracy from licensing schemes being rolled out by local authorities.
Estate agents suggest imminent rule changes could present savvy first-time buyers and home movers with a chance to bag a bargain from landlords keen to sell quickly
And from April 6, many landlords have to start reporting their earnings to the taxman every three months, as part of HMRC’s shift towards digital record-keeping, called Making Tax Digital.
Then from May, the Renters’ Rights Act comes into force, strengthening the rights of tenants and leaving landlords facing fines of up to £40,000 if they fall foul of the new rules.
Landlords will no longer be able to evict without good reason or consider offers above the asking rents. They will also no longer be able to tie renters into fixed-term contracts and tenants can challenge rent increases they deem to be above the market rate. From next April, landlords will also be taxed at 2 per cent above normal income tax rates.
‘There has been a substantial increase in the number of landlords deciding to sell their buy-to-let properties, especially when a property becomes empty,’ says Michael Zucker at north London estate agency Jeremy Leaf. ‘Many are determined to leave the market and are prepared to accept a discount because their business activities are no longer viable.’
Guy Meacock, director of buying agency Prime Purchase, says: ‘Since the Renters’ Rights Act was announced, there has been a noticeable increase in landlords getting out of the game as they realise conditions are no longer in their favour.
‘Many conclude that it is not worth the hassle. The erosion of landlord power and the slow contraction in capital values is killing off supply.’
While landlords looking to exit quickly may be happy to accept a lower price for a fast sale, even those who are not rushing may find they have to lower their expectations.
That’s because the number of homes for sale is at an eight-year high, according to property website Zoopla – which means buyers have plenty to choose between.
There were eight per cent more homes for sale over the past year than in the previous one, and listings are up 38 per cent on 2019 levels, according to Hamptons.
Making Tax Digital: Starting this April, landlords face major changes in the way they report their income and spending to HMRC
Buyers are more likely to opt for a turnkey-ready home, which means former buy-to-lets that need some work after tenants move out may not shift as quickly.
Jonathan Hopper, chief executive of Garrington Property Finders in London, says: ‘All sellers have a tougher time of it when there’s lots of stock on the market, but things are especially tough for many landlords selling up, especially those with properties that are older and need some love.
‘Typically, homes like these would be bought by other landlords, or first-time buyers who’d take them on as a fixer-upper.
‘But demand from other landlords has cooled and fewer first-time buyers are interested in a project home they need to work on.’
Hopper says it’s possible to get more than a 10 per cent discount in some cases. ‘The condition matters,’ he says. ‘If the place looks tired and has not been cared for by tenants, the price will be lower.
‘A landlord selling a former house in multiple occupation [rented by at least three unrelated sharers] that needs work to turn it back into a family home may also have to accept a lower offer.
‘You might pay 5 to 10 per cent less for a rental property than one being sold by the person who lives there. If the seller is a small landlord and the property is sitting vacant and losing the seller money, you might be able to negotiate a double-digit discount.’
Selling up: Landlords are flooding the market in a desperate bid to sell up amid the onslaught of tighter regulation and higher taxation hitting the sector
Zucker, of Jeremy Leaf, says types of properties that were once attractive to investors are seeing the heaviest discounts.
He says: ‘Some properties such as flats above commercial properties, studio flats, multiple occupation houses, ex-local authority flats in high-rise blocks or on large estates or in noisy locations, which were previously attractive to buy-to-let landlords because of good returns, can be very difficult to sell in the current market.
‘The discount for them, as opposed to attractive owner-occupied properties, can be up to 25 per cent.’
Justin Holder, associate director at Hamptons in Chiswick suggests there is a much better chance of securing discounts on rental flats than there are with houses.
‘The biggest pricing sensitivity is in flats that require modernisation,’ he says. ‘With build costs having risen significantly since 2020, many buyers prefer turnkey homes, so condition has a direct impact on value.
‘For houses, where we operate, even when unmodernised, demand is extremely strong and they often attract competing bids, so any apparent discount is usually offset by refurbishment costs.’
What buyers need to consider when buying landlord properties
Homes that have been rented out are often tired or have been configured to maximise the number of bedrooms. This means buyers need imagination about what they can do to a property and must be prepared to work.
Zucker suggests they need to look past the decor and focus on fundamentals, such as the location, layout and building quality.
Meacock, of Prime Purchase, suggests using a surveyor to assess costs involved in taking on landlord properties needing renovation.
‘Given that everything costs so much more these days you must have a survey and ask the surveyor whether you can have a discussion afterwards about likely costs to rectify any defects.
‘If the boiler needs replacing, it could easily cost you £5,000 – this is significant.
He adds: ‘With ex-rentals, they are often stripped of any character and you can be fairly confident that kitchens and bathrooms are going to be relatively inexpensive and not top of the range unless the property belonged to end-users at some point.
‘You can assume there will be plenty of work to do so you are unlikely to be blindsided by the finish but a lot of ex-rentals are dressed to give them some character so look beyond that.’
There can in some cases be complications with the council if trying to convert a building made up for flats back into a house.
Estate agent Michael Zucker says: ‘A property which has previously been in use as a house in multiple occupation (HMO) can offer a good deal if reinstatement to a single family house, possibly involving removal of partitions, kitchenettes and excess shower rooms can easily be achieved, but purchasers need to confirm that relevant Local Authority consents will be readily forthcoming.
‘Many councils insist on HMOs being retained as such, in order to retain a mixture of housing types and demographics.
Anyone buying a property with the tenants still in situ needs to ensure the property will be vacant upon completion.
Trying to evict a tenant through the court system takes around eight months on average, according to the latest government figures.
‘The purchaser’s solicitor will need to confirm that vacant possession will be granted on completion if required or that there are no ongoing disputes if the property is being sold subject to a tenancy.’
One other lesser known route to finding a bargain rental property to buy is to focus is to search rental listings rather than those listed for sale.
‘We are seeing this more frequently due to the shortage of available stock,’ estate agent Justin Holder.
‘Buyers are approaching letting departments to ask whether a landlord would consider selling, and tenants are doing the reverse with sales stock.
‘Off-market approaches can be successful, particularly where a landlord is already reviewing their long-term position, but any sale will still be judged against current market value.’
Finally, not all landlords will be desperate to sell – some are testing the market, knowing they can re-let if they don’t get their target price.
Have you snapped up a property at a big discount? Let us know your tips at money@mailonsunday.co.uk