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Tenants being given first refusal

ended 06. September 2022

A Newspage broker says that, over the past six weeks, he's seen an enormous uptick in enquires from tenants that have been given first refusal to buy the property they're renting from their landlord, often with an element of gifted equity. He adds that several brokers heavily involved in the buy-to-let space are also seeing lots of their landlord clients looking to offload the parts of their portfolios that are either low yielding or have an EPC below C. So are we witnessing the start of the great sell-off as buy-to-let becomes a less attractive investment due to both tax changes in interest relief, stamp duty land tax and forthcoming EPC rules due to hit in 2025? Are landlords increasingly deciding to call it a day, sell up as prices are at an all-time high and walk off into the sunset? Is this something you're seeing? If so, what could this mean for property prices and rents?

8 responses from the Newspage community

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Imran Hussain
Director at Harmony Financial Services
The buy-to-let market is currently undergoing a profound transformation. Dinner party landlords are now seeing the changes to tax relief and upcoming overhaul of EPC requirements and are deciding to sell at arguably the top of the market. This does give an opportunity for tenants to purchase and even first time buyers but I have also spoken to some tenants who, due to their credit history, purchasing a property may not be on the cards for a few years and they have been served notice so this can lead to less supply in the rental market which will only push rents up unless more social / council housing is built.
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Mike Staton
Director at Staton Mortgages
Personally, I feel the buy-to-let market is still well and truly alive. I have accumulated a big portfolio of BTL clients over my career and only one of them has sold their properties during the past three years. For me, rental valuations are increasing significantly and although interest rates are increasing, these costs will inevitably be passed on to the tenant through rent, this will then make it more difficult to get on the property ladder as disposable income will not be there to save for a deposit. For me, the landlord market is still fruitful and will continue to remain so, however with the new legislations coming into play, such as licensing and EPC guidelines, I think we will see the death of the "cowboy" who has no intention to care for the wellbeing of their tenants and just wants to make a quick buck.
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Rob Peters
Principal at Simple Fast Mortgage
Landlords have taken a hammering over recent years through legislative and tax changes that have made holding a BTL or two unattractive for many smaller investors. While change often brings opportunity, it is those landlords who are highly leveraged or who have properties producing a low yield that will look to consolidate part (or all) of their portfolio. While some landlords may say farewell to the BTL market altogether, for others this will simply be a restructuring exercise of selling of a portion of the portfolio to restructure the rest. Either way, we will undoubtedly see an increase in landlord to tenant sales over the coming months.
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Edward Checkley
Managing Director at Advias
Low-interest rates typically made a personally owned buy-to-let either marginally profitable or just about break-even. Many landlords have therefore been of the opinion that house price growth may make the investment worthwhile as a pension pot. However, with increasing interest rates, lower rental yielding areas will create post-tax losses for many investors, making a sale a highly appealing exit. We generally only see limited company purchases now for buy-to-let property, with holiday lets being the exception to the rule.
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Graham Cox
Director at Bridging Hub
There's no doubt landlords are starting to feel the squeeze. While the mortgage interest changes can be largely mitigated by investing via a special purpose vehicle company, landlords still have to pay higher stamp duty and, from 2025, will need to make their rental properties EPC grade C or higher. Some landlords will be paying the gas and electric bills for tenants. Then there's the prospect of increasing void periods due to the cost of living crisis, much higher interest rates to remortgage, and the recent legislation to prevent no-fault evictions. Given all that, it's little wonder landlords are jumping ship and cashing in their chips. Their existing tenants are clearly an easy and quick sale.
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Rhys Schofield
Brand Director at Peak Mortgages and Protection
The buy-to-let market is creaking. There are issues with supply of properties anyway. Rate rises have squeezed margins, the impending law change on EPC ratings gives a clear deadline to either bring the 75% of properties not at standard up to standard or sell up. The net result is that some landlords want out. The organised landlords now have ways to tackle the issue pro-actively, as Enable have launched a great home energy review product where they'll come up with a list of work needed to bring a property up to standard. And whilst landlords sit on the equity from two years of bumper price growth, they can raise the capital to do the works and maybe even grow their portfolio further. In some cases, of course, landlords have their own concerns over the cost of living and cashing in to ride out the economic storm ahead is proving very appealing.
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Paul Neal
Mortgages & Equity Release Advisor at First Choice Financial Services
Tenants being given first refusal is definitely becoming more and more common, as it's an easy way for landlords to offload properties and save some cash. It's also a welcome break for a small percentage of Generation Rent who need all the help they can to get onto the ladder. But as more rental stock leaves the market, rents will rise further and they are already sky high.
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Ian Hewett
Founder at The Bearded Mortgage Broker
I have a had a few of these cases lately. It's an increasingly attractive option for landlords who want to exit the market and can gift some deposit to a great and loyal tenant. Heaven forbid, a landlord can be nice eh! Some tenants are now in a position to borrow with more options on the market to assist them, with family support mortgages and the like. However, the knock-on effect to this exodus is going to cause some serious issues going forward given the lack of rental stock available, inflated prices and issues for tenants. I am sure the government will look at this and deal with it.