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  • Writer's pictureInvestment Synergy Team

A future with no landlords means higher rents and lower pensions

By Eve McGowan - April 19, 2023 6:00 am (Updated April 19, 2023 10:26 am)

RIP landlords. This week it was revealed that up to 500,000 older landlords who bought soon after the first buy-to-let mortgages launched in 1996, and are now cashing in to fund their retirement.

So, what will the impact be if they do die a death? The first people to be weeping round their gravestones are likely to be renters. Currently one in five homes in the country are rented, and fewer landlords will mean fewer homes for tenants to live in, driving up prices.

“We’ve been starting to feel the impact of landlords selling up over the last few years,” says Aneisha Beveridge, head of research at the estate agency Hamptons.

She points out that there are 64 per cent fewer homes available to rent across the country than there were in March 2019.

This has caused rents to go up. Figures from the Office of National Statistics show an increase of 4.7 per cent in the year to February 2023and these increases look set to continue. The Royal Institute of Chartered Surveyors (RICS) predict a further 4 per cent increase over the next 12 months on average across the country, with landlords quitting being one of the main reasons.

Ms Beveridge points out that many tenants now decide to stay put once they start renting, because it tends to be so costly to move, as rents are rising more on the open market than when tenants renew.

“This interrupts the usual rental cycle, further limiting the number of homes available on the open market and pushing up rents even more. It’s a vicious circle,” she says.

For those who do manage to scrape together a deposit, landlords selling up is good news, with a third of homes sold by landlords bought by first-time buyers.

The people that will benefit most from this are people who are lucky enough to be able to live rent-free with parents while they save for their first home as they will experience only the upsides (less competition in buying first-time buyer homes) and not the downside (higher rents meaning you can save less for your deposit).

Jo Eccles, founder of prime central London buying agent, Eccord said: “There’s a significant gulf in the middle of the private rented sector where tenants need choice, variety of property types and a range of price points. If too many landlords exit, the housing needs of those people are not being catered for and the rental properties that remain will only become more expensive.”

It’s also important to remember that the buy-to-let market can help people increase their own incomes, especially those that are in retirement who are looking to boost their pension. When buy to let mortgages were launched, people who didn’t fully trust the stock market seized on a chance to subsidise their retirement income via an investment they felt more secure with (property).

So what will those people who in the past bought a buy-to-let property to supplement their retirement income do instead, now that the numbers no longer stack up for landlords? Claire Trott, divisional director for retirement and planning at St James’s Place, the wealth adviser, agrees that the landscape is changing for these individuals who will now have to pick and choose where to invest for their old age.

“It’s very difficult when the stable income you’re relying on in retirement is diminished by outside forces,” she says. “Those individuals who in the past would have felt a property was a safe place to invest their money – bricks and mortar feel tangible, something we can all understand – are going to have to feed more money in to pensions and other options such as ISAs.

“Some people are turning to options they see as risk free – premium bonds for instance or fixed-term deposits, but it’s very difficult to beat inflation at the moment.”

It’s also likely the return of these low or no-risk options, such as premium bonds, may be a lot less than had the money been in property.

Charlotte Ransom, chief executive of Netwealth, points out that in the medium to longer term investing in stocks and shares has the potential to be just as lucrative an option for retirement savers as buy to let once was. She has noticed that those individuals who would traditionally have bought a buy to let property to supplement their retirement are now confident to make financial investments instead.

“In the past property was seen as a great way of investing for retirement and we were all encouraged to think of that as a route to go down, whereas financial investments felt more abstract. I think that’s changing now. People have better understanding of the alternatives available to them and there is now much more information available about investing and greater transparency which allows people be more in control.”

Investment Synergy - Information and control are key components for any investment decisions, traditional investment vehicle's are not geared for the long lasting changes in the economy worldwide, what once was right... is now somewhat skewed. Maybe the statement back in the day by Former Chancellor, George Osborne who said "he wanted landlords to leave the housing market, so first-time buyers could purchase their properties instead"

was somewhat skewed also...?

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