Professional buy-to-let investors dominate private rented sector

The buy-to-let market is increasingly populated by professional, experienced landlords investing for the long-term, research from Paragon Mortgages has shown.

A panel-based survey of 200 mortgage brokers revealed the number of first-time landlords applying for mortgages has been in decline since the beginning of 2002, while the percentage of remortgage and portfolio extension cases has steadily risen over the same period.

This suggests that growth in the buy-to-let market is being driven by experienced landlords building long-term portfolios rather than occasional investors or new entrants to the market. According to ARLA, the average buy-to-let investor intends to hold the property for 17 years, while a separate survey from Paragon shows that 93% of landlords have held buy-to-let property for six years or more.

In the three months to the end of February, brokers said four out of 10 landlords taking out buy-to-let mortgages (45%) were remortgaging, while 34% were seeking to extend their portfolios. Only 16% of buy-to-let business comes from people making their first buy-to-let purchase. This figure has declined steadily since May 2001, when four out of 10 buy-to-let mortgages were taken out by first-time investors.

Nigel Terrington, Paragon Group chief executive, said: ‘There is still demand from new landlords to enter the market and there opportunities remain for those investors, but professional landlords hold the majority of stock in the private rented sector and these larger scale investors account for the bulk of the new transactions.

‘These landlords represent the core of the buy-to-let market - they are investors that base their purchase decisions on proven tenant demand for long-term returns rather than speculative investment for a quick profit.'

Terrington added: ‘We are experiencing one of the toughest environments for decades, but landlords are in a strong position and invest for the long-term, with some taking opportunist action to add to their portfolios.

‘We have seen reports that there will be a flood of properties being put up for sale following changes to the capital gains tax rules, but we don't believe this will be the case. You may see a trickle of properties being marketed by speculative investors wishing to make a quick exit, but all of our anecdotal and statistical evidence suggests landlords are in it for the long-term. Research released by RICS last week confirms our view. Their survey of residential letting agents revealed that currently only 2% of landlords will sell at the end of their current tenancy due to the changes in capital gains tax. Any inclination to cash in on property price gains at the lower tax rate is far outweighed by exceptional tenant demand leading to rising rents.'

Buy-to-let specialist intermediary, David Whittaker of Mortgages for Business, confirmed that his business has been dealing predominantly with experienced landlords in recent months. ‘The last few months have been amongst our busiest ever as professional landlords respond to the highest rental demand they have seen for years and add properties to their portfolios at good prices. We can see that the owner-occupier, and in particular first-time buyer, is having a tough time of it but inevitably this has helped to bolster our clients' businesses.'