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Residential landlords in UK realigning portfolios in changing market

According to Townends estate agents, whilst those who have built manageable buy to let portfolios are reaping the benefits of low interest rates and high yields, others are assessing the performance and cohesiveness of their buy to let investments in a bid to realign their portfolios.

‘We are experiencing instances of landlords looking to off load properties and opting to do so by selling to other investors with their existing tenant in situ. Whilst this may seem counterintuitive at first glance, savvy landlords are actually using the current climate to adjust and restructure their portfolios, and often selling to another investor can be the quickest and most cost effective way to do so,’ said Caroline Kavanagh, group lettings director of Townends.

Other investors will be attracted by the proven yield and that their tenanted buy to let will be earning money from day one. The landlord selling also benefits from no void period and can continue earning rent right through until the property is sold.
Kavanagh believes that reasons for landlords looking to do this can be as simple as wanting to realign their portfolio where perhaps one or two properties do not ‘fit’ with the other properties. For example, selling off one Victorian terraced property and replacing with a purpose built apartment in the same location as the rest of a portfolio.
But she added that it is not always about off loading to another investor. Landlords are looking at what is most letable in the market and, where they can, re-shaping their portfolios in accordance with supply and demand. ‘This could mean selling off a larger property more suited to say a family, in favour of two smaller ones which have wider appeal and combined offer a greater rental yield. Whatever the reason, it seems landlords and investors with available funds are in the driving seat and the most likely to profit from current market conditions,’ she added.

Meanwhile, a survey by the National Landlords Association (NLA) has found more than half of private residential landlords are planning to reduce the number of properties they let to tenants on housing benefits.
The survey questioned landlords about Local Housing Allowance (LHA), with 58% saying they would have to cut the number of properties they let to benefit recipients. In total, 90% of these landlords plan to do so in the next 18 months with one third stating they would be reducing their LHA properties immediately.

More than 80% of landlords expressed concern about the reduction of LHA rates from the average market rent to the bottom 30%. The same number of landlords were also worried about future LHA increases being linked to the Consumer Price Index (CPI) rather than true market rents.
The survey found that 90% of landlords stated that they cannot afford to reduce their rents to absorb changes to LHA. The large majority of landlords are faced with mortgage repayments and rising running costs.
‘These findings are concerning as they indicate that cuts to LHA benefits are forcing landlords out of this part of the rental market. The private rented sector is playing an increasingly important role in providing accommodation to housing benefit recipients in the UK. The Government is implementing cuts which, this survey tells us, is likely to lead to an increasing number of people struggling to pay their rent,’ said NLA chairman David Salusbury.

‘The NLA believes there is a risk that the Government’s policies will result in fewer affordable rental properties available to vulnerable families across the UK, especially as the number of people claiming benefits continues to rise. Benefit payments must ensure that LHA tenants are not left at risk and that landlords providing this much needed housing can cover their costs,’ he added.