Why Landlords Are ‘Selling Up’, and What It Means for the UK Property Market
It is estimated that around 100,000 landlords will leave the industry every year leading up to 2028. This is according to a statistic by Landlord Today. It’s a frightening statistic. One that bodes far-reaching repercussions for anyone looking to rent or buy a home in the UK.
But why are landlords looking to leave the sector? Is this a good thing or a bad thing for homebuyers? Will a higher supply of housing cause property prices to rise or fall?
All these questions, and more, will be answered in this article, as we delve into the changes that have hit landlords since 2008, why now is a hard time for property investors, and what the future holds for the housing market.
A Glimpse into the Past- Pre-2008
Although the number of landlords has risen since the 2008 recession, many property investors say that renting a home is far more difficult today than it was before this period.
Before the recession, getting a loan from the bank was easier. You had access to different mortgage products, like 100% mortgages, where no deposit was required.
Prior to 2008, house prices were typically much cheaper, and we were in a buoyant market. Many banks were more lenient than they are today and were more willing to lend larger amounts of money.
But as the saying goes, what goes up must come down, and when the crash came, many landlords lost their portfolios due to the high amount of debt that they‘d created in order to build them.
Many of the landlords at the time were accidental or amateur. I.e., they were people who had surplus money from their job and ‘parked it’ in a rental property. They were unprepared for the coming recession, and it put many people off investing altogether.
Understanding the past helps us to understand where we are today. Things are not as easy as they once were, and the damage caused by the recession still lingers in the minds of many current and past investors. The comparison of things being harder today than they were 10 years ago looms in the minds of many of your older, traditional landlords, which is what is making them reconsider their options.
Tax Changes- The Biggest Blow
In 2020, a huge blow came to UK landlords. One that is responsible for many of them leaving the market, and being one of the primary causes for today’s rental prices being so high.
The change referenced was the move by the government to stop landlords from being able to deduct mortgage interest rate repayments against their rental income. For most landlords, interest rate repayments on their mortgages are their biggest expenditure. Not being able to deduct these payments resulted in their tax bills rising, meaning their property portfolios became less profitable.
As we will discuss later in the article, what hurts landlords tends to end up hurting tenants by proxy. If landlords’ portfolios are becoming less profitable-or even losing them money, in the worst instances-then the only thing they can do to counter this is raise their rental prices.
A rise in rental prices then makes life more unaffordable for tenants, which results in a cycle where everyone feels the pain. This cycle is something we will explore more of as we continue looking at the reasons why landlords are leaving the market, and the impact it’s having.
Post-COVID and The Energy Crisis
COVID-19 shook the whole world and its many economies. It had a ripple effect that we are still feeling today. But 2022, when this ripple effect was most pronounced, was a year that hit not just landlords, but all UK homeowners, the hardest.
The hit came in two parts. Part one is The Energy Crisis. Almost everyone with a home or business premises felt this one. At its height, in April 2022, the Energy Crisis caused utility prices to rise by an average of 54%!
Landlords who owned properties with the bills included, like some commercial properties and houses of multiple occupation (HMOs), really felt the pinch when these rises came.
On top of energy bills, 2022 also saw a rise in interest rate repayments after the Bank of England’s base rate rose to a staggering 5.25%. This sudden spike in interest rates meant that many landlords who were on a fixed product were losing money each month. Again, this harmed tenants, as many people who were letting at the time started to see their rents increase. This didn’t just affect the residential market, but commercial tenants, including businesses large and small, felt the burn too.
Tenant Rights and The Changes for Landlords
There are many laws and pieces of legislation in place to protect tenants and their rights. It’s important to ensure that everyone is given a safe, comfortable and private place to live, which is why these laws exist.
Likewise, certain pieces of legislation exist to protect landlords in instances where tenants refuse to pay rent or deliberately damage their property.
One of the most well-known and protective pieces of legislation is Section 21, also known as the ‘no fault eviction’. Section 21 can be issued by a landlord to a tenant, giving them two months to vacate the property (or longer, under certain circumstances).
This is the easiest way to remove an unpaying or problematic tenant from a property. However, this legislation has been abused by a small number of landlords, which had an impact on all property investors, both good and bad.
The UK government are in talks to remove Section 21 altogether. There are some positives to this for renters, but for landlords, it causes a stumbling block. Because, if Section 21 is removed, it will make it increasingly difficult to evict tenants.
There are other pieces of legislation available, like Section 8. But Section 21 is the quickest and easiest. Without it, landlords incur more risk, and the struggle to take their property back in a worst-case scenario has made many debate exiting the market, or deciding not to increase the size of their portfolio.
How Does the Plight of Landlords Affect the Property Market?
If we take landlords out of the equation for a moment and look at things from a business perspective, things start to make more sense. Landlords are like businesses. They exist to make money. When their costs and their risk increase, they are left with three options. Number one, close up shop. Number two, raise their prices. Number three, diversify.
So, let’s walk through the impact of each option, and how it affects the wider housing market.
What happens to the property market if landlords ‘sell up’?
The first and most obvious effect of landlords selling their properties is that there would be an increase of stock on the market for homebuyers, but far less stock for people looking to rent.
According to Avant Homes, as of 2024, their statistics show that 20% of UK residents rent privately. With house prices rising to an almost unaffordable amount for many, it’s not unrealistic if we expect to see this percentage increase as we see a decrease in homebuyers.
With fewer rental properties on the market, we can expect to see multiple people fighting to get a tenancy on the same house. Low supply and such high demand will cause rental prices to rise, again making life harder for tenants.
There would, however, be more stock available on the market for homebuyers. There would also be an increase in older stock that could be renovated and increased in value. This could, for a time, and economy-dependent, bring the average house price down in the UK. But whether or not this surplus of housing would be affordable to the average UK homebuyer remains to be seen.
What Happens if Landlords Raise Rents?
If landlords are forced to increase rents, then this would make renting unaffordable for some people. Unfortunately, there is a massive undersupply of social housing in the UK, so as of yet, there isn’t a feasible backup option.
If renting does become unaffordable, then we can expect to see people living with their families longer, or looking at more affordable living strategies, like shared ownership or co-living.
Co-living can include apartment blocks that are built with an emphasis on community, with shops, gyms and other necessities being held within them. Or it can include multiple people sharing one household (an HMO) and renting out a room. This would be more affordable and would provide a more cost-effective stepping stone to getting on the property ladder.
Previously, HMOs were seen as a last resort. However, the quality of shared living is increasing substantially with the rising demand, so we wouldn’t be surprised to see HMOs becoming a more popular option.
Landlord Diversification and the Rise of Holiday Lets
If you live in a tourist hotspot, then you may have seen a startling rise in holiday lets. On the bright side, if you’re looking for a nice apartment to stay in for the weekend, you’re not short on options. On the flip side, this is doing little to help the Housing Crisis.
The costs for landlords have risen disproportionately to the rental income they receive. To try and overcome this problem, and make more profit from their properties, many landlords decided to use their buildings for short-term guests, charging by the night rather than renting to one tenant for several months or years.
This increase in short-term accommodation has meant less stock when it comes to houses available to rent or buy. Undersupply leads to rental and house prices increasing further, harming everyone in the process.
However, this is a problem that the government is aware of, and they are currently looking at ways to regulate the short-term let space. How this regulation will look, or the broader consequences it will have, remains to be seen.
The Solution
As it stans, there is an ‘us vs them’ mentality when it comes to landlords and tenants. But, on further inspection, we can see that the two are linked. When something hurts one, it unintentionally ends up harming the other.
We need more landlords who care deeply about their tenants and want to create better spaces to live. These landlords should lead the charge, acting ethically and preventing the need for government intervention.
When unfair and undue legislation comes to harm landlords, then they should turn to their local MPs and write about their concerns and the impact it is having. There are governing bodies, like the National Residential Landlords Association (NRLA) that are actively lobbying on landlords behaves.
For tenants, our advice is to stay abreast of what is going on in the property market. Make informed decisions, save money where possible, and if bills seem unaffordable, then consider staying with loved ones, sharing with friends, or looking at co-living accommodation to save money.
Join Intanest to Stay Ahead of The Latest Property Changes
The property market is ever-evolving. Whether you’re a landlord looking for your next investment, or a would-be homeowner looking for the right time to buy, our online library provides you with all the knowledge, tools and resources you need to make an informed decision before making a property purchase.
We’re the platform built to bring people who are passionate about property together, and your one-stop-shop for anything related to the UK housing market.
The best part is, joining and using our platform is entirely free. Sign up today and become a property expert by setting up your free account here.
