Investment portfolios grow by a third in just 4 years


- Landlords’ portfolios up by a third in 4 years, from 9.8 to 12.8 properties, driven by growing tenant demand

- 36% of landlords now have more than 10 properties, up from 23% 4 years ago

- Young people leave home earlier and buy later, with private rentals filling the ‘accommodation gap’

- Three quarters of tenants are aged 35 or less, with 25-35s particularly strongly represented as first time home purchase becomes harder to afford

- The typical tenant is single or in a couple without children, and an office worker

Growth in portfolios

The number of properties in the typical landlord’s portfolio has risen by almost a third in 4 years, according to Paragon Mortgages’ landlord survey for the third quarter 2004. The average investor, who owned 9.8 properties in 2000, now owns 12.8, an increase of 3 properties or 31% in 4 years.

John Heron, managing director of Paragon Mortgages explains: “Landlords have ridden the wave of growing tenant demand for rented homes, and have progressively built up significantly larger portfolios in response to this demand. As home ownership has become more of a stretch for many prospective first time buyers, many of them have tended to stay in rented accommodation for longer.”

“A recent survey we undertook showed that people are leaving home younger than they used to, at 20 years as compared with 22 years for earlier generations, but fewer than 1 in 5 of the 18-24 age bracket buys their own property immediately on leaving home. In contrast, a third of people now in their mid forties to mid fifties were able to buy straight away. In fact, the proportion of people who succeed in buying their own home by age 30 has dwindled from 68% to 60%. Renting fills the housing gap, and a massive 68% of British people live in rented homes at some point in their lives.”

“As their property portfolios become bigger, landlords benefit from the economies of scale and adopt a more ‘professional’ approach to buy-to-let as a business. As their residential lettings business grows, it also becomes the main source of income for many landlords.”

Almost 4 in 10 landlords (36%) now own more than 10 investment properties, compared with less than 1 in 4 (23%) 4 years ago. In percentage terms, growth in large portfolios of 10 properties or more has been very strong: the proportion of landlords owning between 11 and 20 properties is up 64%; between 20 and 50 properties up 56%; and more than 50 properties up 39%.

Over the same period, there has been a decline in the proportion of landlords owning smaller portfolios of between 2 and 10 properties, of 27%. Landlords owning just one rental property have jumped, however.

“This growth in the average size of buy-to-let portfolios reflects the fact that the bulk of this country’s rented accommodation is in the hands of serious property investors who treat this as a long term business and who buy in response to clearly identified tenant demand. They are quite unlike the small-scale speculators who are often short-termist in outlook and tend to buy and sell based on short term, emotive market signals such as house prices or interest rates”, comments John Heron.

Age and characteristics of tenants

Landlords reported that three quarters of tenants are aged 35 or less. Over a third (34%) of their tenants are under 25 and a whopping 41% are aged between 26 and 35 years. The proportion of tenants who are older tails off progressively, with only 17% between 36 and 45, and 8% between 46 and 55. The over 56s represent a very small percentage, of little more than 5% in total.

John Heron adds: “It’s no surprise that tenants are mainly from younger age groups. However, the ‘bulge’ of 25 to 35 year olds reflects the difficulties encountered by people in their late 20s and early 30s to get on the housing ladder, so they are forced to rent homes for longer. What has changed over recent years is that there is no longer any social ‘stigma’ in living in rented homes. Landlords provide good, decent accommodation at a fair price where tenants are happy to live for as long as it suits their personal circumstances, or until they can afford to buy a home.”

The vast majority of tenants are employed, accounting for 72% of the total, while students represent the next biggest category, accounting for just 19%.

Almost as many (17%) are people receiving DSS support. Looking at the typical occupations of employed tenants, nearly half (45%) are either skilled non-manual or clerical workers, while well over a third (36%) have professional or managerial roles. The remaining 19% comprise mainly manual workers.

Continues John Heron: “The survey confirms that rented homes are the favoured accommodation choice of young people who do skilled or professional non-manual or clerical work. The bread and butter business for most buy-to-let landlords is providing decent, affordable accommodation for office workers. Student lettings represent an important niche for some landlords, representing almost a fifth of business, while DSS recipients are also a significant minority.”

In terms of personal status, more than 8 out of 10 tenants are either singles or couples, with families representing less than 1 in 5. Homes in multiple occupation (shared by a number of tenants) comprise almost a third of rented properties.

John Heron concludes: “The survey paints a clear picture of the typical tenant, who is most likely to be under 35, living as a single or a couple, but without children, and an office worker. Over the past few years, landlords have successfully grown their property investment businesses by responding to the demands of this growing customer base. It’s by meeting the demands of tenants, their customers in the market place, that landlords have been able to grow the size of their portfolios so strongly over the 4 years.”