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Buy-to-let investors plan to stay

Fewer than six per cent of landlords who have bought to let plan to leave the market over the next six months and over 60 per cent expect to stay in the residential market for more than ten years finds a new report by LSE academics, published 1 March.  

The report, by Kathleen Scanlon and Professor Christine Whitehead| of the London School of Economics and Political Science (LSE), was produced for the Council of Mortgage Lenders and published alongside a second report on property investment funds. 

The Profile and Intentions of Investors is an analysis of the profile and intentions of buy-to-let investors, based on a survey of 1,340 landlords. The survey found that about a quarter of these had only one rental property, while about the same proportion owned three to five properties. Less than two per cent owned more than 50 properties, and the median number owned was four. 

Around two thirds of buy-to-let landlords had another job or relied mainly on other income, but 20 per cent derived a significant amount of their income from their buy-to-let portfolio and for 11 per cent it was their main job or source of income. 'Professional' landlords (defined here as those who receive rental income equal to at least the national average income, and who can live off their income without selling properties to release capital gains) accounted for around a fifth of the total. They have portfolios worth at least £1 million typically made up of six to 20 properties.

At least half of landlords had mortgages on all their properties. Most had mortgages representing 26-75 per cent of their mortgaged portfolio. Less than one per cent had a loan-to-value ratio of over 90 per cent. The vast majority of landlords have interest-only rather than repayment mortgages. 

Looking ahead, fewer than six per cent of landlords said they planned to reduce their portfolio or leave the market over the next six months while 38 per cent said they planned to increase their portfolios. Over 60 per cent said they expect to stay in the residential market for more than ten years. The main things that would encourage landlords to buy were low interest rates, rising house prices and very good rental yields. The main things that would not make them sell were rising interest rates and rental income that did not cover the mortgage - these were more likely than stagnant house prices to prompt landlords to sell. 

The Profile and Intentions of Investors was release alongside a second report, Property Investment Funds for the UK: potential impact on the private rental market by Michael Ball of the University of Reading and John Glascock of the University of Cambridge.

Andrew Heywood, senior policy adviser at the Council of Mortgage Lenders, said: 'Taken together, these two reports outline a stable future for the buy-to-let sector, and the possibility of modest improvements to some segments of the rental market if private investment funds are introduced. Buy-to-let is maturing, with landlords becoming more experienced and professional, and is making an important contribution to the private rented sector as a whole.'

4 March 2005