Zoopla, one of the UK’s leading property portals, has reported that properties being sold by landlords in the BTL market are typically priced at 25% below the average of the broader housing market. This is an enticing prospect for would-be investors and first-time buyers alike.
Why are BTL Properties Selling for Less?
Several factors are influencing this trend:
- Higher Mortgage Rates: Landlords have been contending with increased mortgage rates. The squeeze from these heightened rates means that mortgaged BTL units now constitute about 8.0% of all property sales in the UK.
- Equity Requirements in Southern England: For BTL investors based in the southern parts of England, the financial metrics are more challenging. The current environment requires them to have equity ranging from 40% to 50% of the property’s value for the investment to be financially viable. As a result, Zoopla anticipates that new investments in this region will be reduced this year.
- Supply Increase due to Landlord Sales: As more landlords decide to offload their previously rented homes, there’s an influx in the supply of homes. These properties tend to be highly attractive to first-time buyers due to their discounted prices, often 25% lower than the broader housing market.
Overall Market Activity: A Slower Pace in 2023
Zoopla’s findings suggest that the sales market in 2023 is set to be the most subdued in over ten years. Sales transactions are projected to be 21% below what was seen in 2022. Here are some crucial points from their report:
- Declining Demand: By the end of this summer, the demand for homes had decreased, running 34% below the five-year average.
- Reduced Sales: Agreed sales were down by 20% compared to the five-year average.
- Increase in Supply: On the other hand, property listings had risen, showing a 16% increase.
Cash Sales Vs. Mortgaged Sales
Zoopla’s predictions based on data from the first half of 2023 highlight a notable difference in trends between cash and mortgaged sales:
- Cash sales are expected to see a minor decline of just 1.0%.
- In contrast, the number of mortgaged sales is anticipated to be significantly lower, with a 28% reduction.
Expert Insight from Zoopla’s Research Executive Director
Richard Donnell, Zoopla’s research executive director, has shed light on the shifting dynamics of the property market. He noted:
- House Price Growth: The momentum of house price growth has decelerated over the past year due to weakened demand, primarily caused by rising mortgage rates. Southern England has felt the brunt of this slowdown, where elevated mortgage rates have rendered many potential buyers unable to participate in the housing market.
- The Silver Lining: Despite the challenges, UK house prices have managed to record a 0.1% increase over the year. However, it’s essential to note that the volume of sales has been most affected by the surge in borrowing costs, particularly impacting buyers reliant on mortgages.
- Cash Buyers Remain Resilient: Those buying with cash have shown more resilience against these market shifts. They are expected to account for over one-third of all property sales in 2023.
Looking Ahead: The Second Half of 2023
The horizon brings a glimmer of hope. Although mortgage rates have begun a slow descent, a significant resurgence in the property market’s activity might only be observed if rates dip below the 5.0% mark. Such a reduction could rejuvenate interest and potentially stimulate an increase in home moves during the latter part of 2023.
Conclusion: Navigating the Waters
Understanding the ebbs and flows of the property market is crucial for making informed decisions. For prospective BTL investors, the current discounts on landlord-sold properties present enticing opportunities. However, as always, due diligence, careful planning, and keeping a close eye on market developments are essential for success in property investment.