Why Are Landlords Leaving the Rental Market?

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Buy-to-let investments were once highly sought-after for their potential to yield significant profits within a relatively short timeframe. However, there has been a noticeable trend of landlords exiting the market in recent times. This shift in the buy-to-let sector landscape has raised concerns about a potential shortage of rental housing, particularly at a time when many individuals are unable to afford property purchases of their own.

The reasons behind this exodus from the buy-to-let sector are multifaceted and merit examination. While buy-to-let investments historically offered attractive returns, various factors have contributed to landlords reconsidering their involvement in the market. Understanding these factors is essential for grasping the dynamics at play and their implications for both landlords and tenants alike.

One significant factor contributing to the departure of landlords from the buy-to-let market is the evolving regulatory environment. Over the years, government interventions, such as changes to tax regulations and stricter lending criteria, have made buy-to-let investments less financially advantageous for landlords. Additionally, regulatory changes aimed at improving tenant rights and protections have increased landlords’ responsibilities and administrative burdens, further dampening the appeal of buy-to-let investments.

Rising interest rates

Since December 2021, interest rates have been on the rise as part of the Bank of England’s strategy to address inflation. According to the Royal Institution of Chartered Surveyors (RICS), this uptick in interest rates is a significant driver prompting landlords to exit the sector and liquidate their properties. Similarly, real estate firm Savills attributes the declining profitability of landlords to the surge in interest rates, resulting in the lowest average net profits since 2007. This shift marks a notable transition for the private rental market after a period of substantial growth.

Lucian Cook, head of residential research at Savills, highlighted the impact of rising interest rates on landlords’ profitability. He noted a significant decline in cash profits for landlords, attributing it to successive interest rate hikes. Cook pointed out that while landlords were previously enjoying robust cash profits averaging 23% of rental income between 2014 and 2021, the recent series of interest rate increases has slashed this figure to under four percent in the current year.

End of no fault evictions

The proposal to eliminate “no-fault” Section 21 evictions outlined in the Renters Reform Bill has prompted buy-to-let investors to reassess their stance. Currently, landlords in England and Wales can evict tenants without cause, but the proposed legislation aims to enhance tenant security while preserving rental flexibility. Under the new law, landlords will only be permitted to evict tenants under reasonable circumstances, as defined by legislation, shifting the balance between tenant rights and landlord prerogatives.

Ageing landlords retiring

Buy-to-let investment surged in popularity around the early 2000s, but many landlords who entered the market then are now approaching retirement age. According to Savills, a significant number of buy-to-let properties are owned by landlords aged 55 and above, raising concerns about the future supply of rental housing.

With a large portion of buy-to-let properties owned by older landlords, there’s a risk that the supply of rental properties might not keep pace with demand. This could limit options for tenants unable to purchase their own homes, particularly impacting lower-income households.

To address this imbalance, it’s crucial to increase rental supply and reassure both current and potential buy-to-let investors about the viability of rental property as an investment. This requires proactive measures to support and incentivize investment in the rental market.

For expert guidance and support in managing your investment portfolio, reach out to our team of professional financial planners. We’re here to help you navigate the complexities of property investment and secure your financial future.