Are Buy to Let Landlords Buying Property Again? Yes and No

I just read a great Citywire article titled, Buy to let: Who Do You Believe? The article was about the recent survey of residential landlords conducted by the Association of Residential Lettings Agents, or rather the conclusions drawn from the collected responses.

ARLA says that its findings mean buy to let landlords are buying again, while Citywire (courtesy of Lorna Bourke) says otherwise. Here is a balanced look at their arguments so you can decide for yourself what is going on with the buy to let market.

The ARLA survey found that the average number of properties owned by residential landlords had increased from 6.4 in March this year, to 7.5 in June, before falling back to 7.0 in September.

ARLA says: this indicates that residential landlords have been buying property this year

Citywire says: this is more likely a reflection on the number of novice 1 and 2 property owners who have been repossessed since the onset of the downturn.

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It is not that easy. Yes, the credit crunch and ensuing recession took a scythe to the numbers of speculative new buy-to-letters, who got caught with their pants down, having failed to do proper research and/or borrowed too much. That is for sure.

But many of those repossessed properties were bought by -- you guessed it -- buy-to-letters. The auctions were held up and down the UK to sell all those repossessed properties, and the consensus of opinion is that most of the properties were being bought by investors. The reports that I can find also suggest that novice investors were predominant early this year.

This was apparently while old while the old hands waited out the market, foreseeing the flood of rentals that would come as the buy to flippers failed at the flipping.

Another reason why novices outweighed the old hands is that the auctions were primarily filled with cash-buyers, as a lot of well-off mum and dad's took the opportunity to set their career endangered kids up as buy to letters, cest la folie.

See the following articles that back up my assertions on the trends of buy to let buying at auctions:

• Repossessed Homes Go Under the American Hammer
• UK Properties Snapped Up By Opportunistic Investors
• The Big Repossession Sell Off
• House Price Crash Forum on Repossession Auctions, primarily posted to buy investors

Excuse the REDC tone, but it is a collection of articles I bookmarked while researching an article on first time buyers buying at auction.

Citywire said that ARLAs other finding, on the increased experience of investors confirms their view; that it was the reduction of 1 and 2 property owners that accounted for the average number of properties owned going up, Citywire says:

Experience levels among property investors have certainly grown with the average landlord having run a portfolio for 9.2 years up from 7.8 six months ago,’ says ARLA.

Landlords cannot possibly have gained 1.4 years experience in six months. The rise in experience in the market are exactly what would happen if the new novice investors who bought city centre flats at the top of the market in 2007 bailed out.

Again I think this is an oversimplified way of looking at it. Sure, the average experience of investors rising like that could indicate a decrease in the number of novices, but it could also indicate a rise in the number of experienced investors. How many buy-to-letters of old will have taken the opportunity to buy repossessed properties at such low prices and restart their land lording operations.

The rise in experience could also be because of the young breed of novice investor using their own marketing methods and not using letting agents.

Maybe one of those reasons explains the rise in experience or maybe a combination of several factors does, the simple fact is that you should not use the experience indicator to tell whether buy to letters are buying, and you shouldn't even try.

So, taking that out of the equation, the reason why the average number of properties owned by buy to let landlords increased is most likely because they were buying repossessed properties at auction. This is confirmed by the fact that the number has decreased more recently as the number of repossessed properties has been decreasing.

This does not mean buy to letters are buying again in the sense that ARLA meant it, but it does not mean that they categorically aren't either, as Citywire would have you believe, so the answer over who to believe is; neither of them.