More buy to let landlords selling up

The number of residential landlords selling their properties is at a three year high, as many try to cash in their properties at the height of the market, according the Royal Institution of Chartered Surveyors.

Landlords are also deserting the market due to a significant drop in the yields on flats as that area of the market suffers from over-supply, concerns on interest rates, and restrictions on lending from cautious financial institutions. Despite the fact that capital gains tax on properties will be reduced next April, a significant number are selling now, perhaps pre-empting the big sell-off next spring.

The RICS revealed that the number of new landlord instructions dipped 19% in the three months ending in October. Instructions are regarded as an indication of the strength of the buy-to-let market and some experts believe that its demise could significantly impact on the overall housing market, exacerbating existing problems.

The latest Lettings Survey shows an increase in the percentage of landlords selling properties when tenants’ leases expire, up to 6.5% from 6.1%, the third consecutive quarterly increase and it now stands at the highest level since January 2005. RICS housing spokesman Jeremy Leaf believed that current economic uncertainty and a more cautious approach from lenders were factors in dissuading would-be investors.

Many buy-to-let mortgages were immediately withdrawn after the collapse of the sub-prime market in the USA, and since the near failure of the Northern Rock, UK mortgages in every sector including residential properties have been harder to obtain as banks and building societies have significantly tightened their lending criteria.

When the buy-to-let mortgage was first launched in 1996, only 20,000 were taken out but according to the Council of Mortgage lenders (CML) this figure rose to 990,000 in September 2007, with the amount advanced totalling £116billion.

But, as lenders get more cautious so the average deposit required has risen significantly. In November 2007 the average deposit for buy-to-let mortgages was 30% compared to a standard 8% only five years ago. Another major requirement of many lenders in the buy-to-let market is that rents are at least 125% of the monthly mortgage payment.

So, due to the reduction in borrowers willing to lend, would be buy-to-let investors are unable to compare mortgages as favourably as they could in recent years. As a result many have turned away from the market considering the potential risks too great, or because they are simply unable to afford it.