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Tuesday 14 February 2017
Cash landlords hit a record high
The proportion of landlords paying in cash for a property reached 61% in January 2017, the highest since records began in 2007 (figure 1). Landlords who have chosen to buy since the introduction of the 3% stamp duty surcharge in April 2016, have relied more heavily than ever on cash to fund their purchases. Over the last decade the proportion of landlords buying with cash has steadily increased. In 2007 just 41% of landlords bought a home without a mortgage, a figure which peaked at 58% by 2010 before dropping back (figure 1).
Landlords buying homes in the North of England are most likely to use cash to fund their purchase. 70% of landlord purchases in the North West of England are in cash, a larger proportion than anywhere else (table 1). In similar fashion to those who buy a home with cash to live in themselves, London landlords are most likely to use mortgage finance (table 1). As house prices in the capital have risen, there has been a correspondingly sharp fall in the number of landlords not using a mortgage.
Cash purchases drive the top and bottom of the rental market with the most and least expensive homes most likely to be bought with cash. Over the last year almost two thirds of homes (65%) costing less than £125,000 were paid for in cash (table 2). They were closely followed by the 64% of landlords who paid in cash for homes costing £1,000,000 or more (table 2). Around a quarter (24%) of all landlord cash purchases were funded by the sale of another property elsewhere.
In January 2017 the cost of a new let was 2.6% higher than in the same month last year, the fastest January increase for two years (table 3). This January saw 36% of landlords increase the rent when signing a new tenancy, up from 27% last year. Rental growth has been led by areas outside London, with rents in the capital 2.7% lower than they were last year (table 3). The three regions with the fastest growing rents were Wales (up 8.8%), the South East (up 8.2%) and the East of England (up 7.8%) (table 3).
Commenting Johnny Morris, Research Director at Countrywide, said:
“On average landlords sell a home once every 17 years meaning as prices have increased, a significant amount of wealth has built up in the sector. This is now fuelling cash purchases. With the forthcoming tapering of tax relief on mortgage interest payment, landlords have less of an incentive to borrow, suggesting more cash activity in 2017.
“Rents are rising at twice the pace of last January and there are signs that rental growth is starting to pick up in much of the country. Ten months after the introduction of the stamp duty surcharge the number of homes on the rental market is showing signs of coming down. If this fall continues over the next few months, it is likely to support rental price growth.”
The Countrywide Lettings Index has been running since 2012 and we continually seek to improve its accuracy. From June 2017 the methodology was changed to reduce the impact of seasonality and volatility in the rental market.
While the index remains a mix adjusted series, rent and rental growth figures for each month are now based on a three month rolling average rather than lets agreed in the last month. The most expensive decile of homes let has been excluded to reduce volatility and the mix has been updated to include the most recently published government stock statistics.
The Countrywide Lettings Index uses data from Great Britain's largest letting agent to track changes to the cost of renting. The index is based on the 90,000 homes let and managed by Countrywide in each year, adjusting for their location and type. It is based on achieved rather than advertised rents and the published monthly rental figures are an average of the new lets and renewals of tenancies over a rolling three month period.