The rental market remains extremely competitive for tenants, with many opting to remain in their properties for longer, and this has led to more landlords selling with tenants in situ.
Buy-to-let landlords buying and selling their investment properties for strategic and financial reasons is certainly nothing new, but the current climate is putting pressure on overleveraged landlords in particular as borrowing costs have soared. As a result, more portfolio landlords are now looking to sell some of their properties.
This trend has been noted by data from Landlords Sales Agency, which revealed that it was receiving an average of 240 enquiries per month from landlords with more than 20 properties, who were looking to sell.
However, the agency also revealed that around three quarters of its buy-to-let sales agreed last year were completed with tenants in situ, meaning the properties were sold by a landlord to another landlord. This demonstrates that there is ongoing appetite from those investors in a position to buy.
It is also a positive sign for the supply of rental properties in the market, which continue to fall significantly short of tenant demand in some locations. Selling with tenants in situ keeps more much-needed rental homes in the sector, and offers tenants the chance to stay in their current homes for longer.
Critical need for rental homes
David Coughlin, managing director at Landlord Sales Agency, said that the current market conditions made it difficult for some landlords to stay in the market. This in turn is leading to more tenants standing to lose their homes when landlords wish to sell without tenants in situ.
He believes there is a “critical need for rental properties” in the UK, and the agency works to help tenants pay rents and arrears, as well as helping some tenants relocate.
“We’re trying to help both landlords and tenants navigate their way through this extremely challenging time,” he said.
“Tenants are having to accept rent rises, and in 50 per cent of the sales we have agreed, the tenants have opted to stay with a higher rent because they know fierce competition for rental properties could see them paying even more elsewhere.”
The pros and cons of selling with tenants in situ
For property investors, it is important to consider a possible exit strategy when wanting to divest your property assets, either for reinvestment purposes or when you wish to sell for retirement, for example. Selling with tenants in situ can be a popular way for landlords to sell to other landlords in the market.
According to Kirsty Burnham, head of property at Movewise, there are five main benefits to landlords – as well as tenants – when you sell with tenants in situ:
- No loss of income – for the selling landlord, you continue to receive rental payments right up until completion, and the buyer also begins to receive a rental income straight away.
- Guaranteed yield for the buyer – the buying landlord knows the rental amount from the beginning, so they know what yields they will be receiving from the property. By contrast, an empty property means the buyer does not know exactly what the rental income will be.
- It saves time – there is no need to give tenants an eviction notice, which is normally 60 days prior to eviction, so keeping tenants in situ means there are no delays when it comes to sell.
- Less disruptive for tenants – if your tenants are happy in the property and wish to stay, it means nothing changes for them apart from who they pay their rent to. The tenancy agreement shouldn’t change.
- Better price – sometimes, you can get a better offer from a property investor looking for a ready-to-run property with tenants in situ, than from a homebuyer. This is especially the case for houses in multiple occupation (HMOs).
There are drawbacks to selling a property with tenants in situ, too, of course. Tenanted properties sometimes achieve a lower price where buyers consider it a higher risk investment, particularly if their long-term plan is to sell the property on again.
As Mike Cook, chief mortgage officer at Market Financial Solutions, points out, there can also be administrative costs to consider for both parties: “Landlords can’t evict a sitting tenant unless they break the terms of their existing tenancy agreement. This tenancy agreement comes with the property as part of the sale. There is no legal obligation for a sitting tenant to sign a new rental agreement if ownership changes hands.”
He adds that landlords are also obliged to inform the tenant in advance if they are selling the property, and must give them 24 hours’ notice for each property viewing, which can be off-putting for the seller.
