Amid an ongoing shortage of homes and rising rents, perhaps the biggest housing headache for the government is how to stop landlords leaving the private rented sector (PRS).
Rising interest rates, changes in tax, and other regulatory reforms have all combined to make landlords think twice about remaining in business.
Accountancy firm UHY Hacker Young, using data from HMRC, estimated that 70,000 buy-to-let landlords exited the PRS last year and 116,000 rental properties were lost to the sector.
And figures from Zoopla have revealed that 11% of homes for sale in the UK are former rental properties.
In the first half of 2023, higher mortgage rates and tougher affordability criteria have deterred many first-time buyers from owning their own home and kept them in rented accommodation for longer.
The result has been more pressure on available stock in the PRS and record rent increases.
There are around 5 million households in the UK PRS, housing 19% of all households.
All of this leaves the government with a challenge: to reverse the trend of landlord departures from the sector and generate real growth.
Neil Cobbold, managing director of automated rental payment and client accounting specialists, PayProp UK, believes the sector can bounce back and become stronger than ever – as long as the right incentives are in place.
“The private rented sector has been under the government spotlight in recent years and there is no doubt that this may have contributed to some landlords leaving the industry.
“While we welcome measures to improve the quality of housing in the PRS and strengthen tenant rights, we also believe that more could be done to both incentivise landlords to remain in the sector and to attract new investors.”
“It has been widely discussed within the industry that the reversal of Section 24 may be such an incentive for landlords to remain even with more regulation.
“Being allowed to deduct mortgage payments from rental income before tax would make a huge difference to landlords’ bottom lines.”
Other government measures criticised by landlords are the proposed changes to the Minimum Energy Efficiency Standards (MEES) Regulations. By law, all residential rental property must have an Energy Performance Certificate rating of at least an ‘E’. The government has recently proposed that this be stepped up further to a ‘C’ or above by December 2028.
“The measures required to achieve this new standard could prove to be too expensive for some landlords,” cautions Cobbold.
“The UK has some of the oldest housing stock in Europe and the industry believes that the government should give some thought to offering financial support to landlords who might struggle to make the sometimes significant investment required. Extensive insulation work and the installation of new heating systems can be prohibitively expensive – especially in those parts of the country where rents are lower and it would take far longer for landlords to see a return.”
The other factor which has hit the PRS is the lack of available housing stock – especially in places where demand is high, like the major cities.
“While house prices are falling, mortgage interest rates remain high, so first-time buyers are having to wait longer to afford them. Some workers may never be able to afford to buy their own home, and some of those who could still value the flexibility of renting.
“The demand for high-quality rentals is always going to be there and the government has got to find a way to attract investors who are interested in being the landlords of tomorrow.
“The country desperately needs more, newer, greener homes in the PRS – especially in areas of high population where demand has gone through the roof.”
Section 24 was a strategy to deter small, amateur and accidental landlords out of the PRS, a way to tackle the shortage of supply of starter homes that were being bought by boomers with pension lump sums.
PRS was providing both capital growth and income and since 2005 it has been a stable, low rick investment that was outperforming most other investment opportunities.
Private landlords leaving the sector isn’t a headache it is the aim.
Overseas and institutional investors with long term investment strategies provide a stability to the sector, the capital growth isn’t their main driver.
With interest rates being reinstated as a tool to control inflation, its hard to see rates returning to levels that facilitated the PRS and short let industry in the way it has done for the past 18 years.
Fresh thinking is needed if the letting income the industry has become reliant on is to be protected and maintained.
Boomers are passing property on to their children or cashing in and buying caper vans
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The damage is done and its getting worse.
Relentless political shenanigans by government, civil servants and pressure groups/charities over many years has stocked fear and demonised landlords by picking on the many because of the few rogues, which they had sufficient legislation to corral rogues that have been in place for over two decades.
A fish rots from the head down! Top (head) of the system of poor management is squarely at the door of the Housing Minister (all of them and there have been many) of all political parties and devolved powers in the UK. Scotland and Wales are entrenched in their idiotic principles, that clearly do not work. England seems to change ministers more often than Christmas festivities which begs the question who is really in control? Senior civil servants/policy advisers, because the relentless attack on landlords and PRS has been consistent through many changes of headman.
There seems to have been very little (I haven’t witnessed any) consideration of the consequences of policy decisions or as I suspect, yes they do know exactly what they are doing and don’t give a stuff.
The lot of them, politicians and pressure groups have created a crisis in PRS and they are to blame, all of them. They are not just frightening landlords out of PRS, those same PRS people that have been helping to bail out the chronic shortage of housing all over the UK ………. BUT …………… BUT CAUSING IMMENSE MISERY for those on the receiving end of their political ideology that hasn’t helped to keep people with a roof over their heads, the tenant. Shocking poor judgement by decision makers, who have no comprehension what it is like to go through eviction and for the children distress, because they have made being a landlord in PRS uninviting.
Lettings business will struggle to stay afloat and connected services/contractors are feeling the pinch as less work is around.
It is claimed by government/media outlets approx 40% of PRS has left the market, more is following. We continue to have landlords telling us they are selling up. The biggest fear is the new EPC regulations being threatened. If you are listening government’S, DO NOT ENTERTIAN CHANGING CURRENT EPC REQUIREMENTS. You must come out asap and make it commonly known to all.
I am an EPC assessor as well as agent for decades, and by my reconning EPC ‘C’ requirement will result in over 80% of pre 1930 properties will leave the market. Meanwhile government gives out financial handouts to SHS from our taxes to improve their properties and not a cent for PRS.
Local authorities are so desperate for additional housing (they are bursting at the seems with temporary accommodation for many who should not be in PRS), they are offering incentives to take these tenant’s off their hands. Sounds inviting with the promise of six or twelve months guaranteed rent. READ THE SMALL PRINT. Your wealth is likely to be at risk in a years time and try and get the occupants out, as the contracted tenant is the local authority! While they are in control of the occupant, many regulations do not apply to councils (which is scandalous) but do to private landlords the very second the property comes back to them.
SHS must not and should never have been in PRS. They cannot afford todays rent in any event and the socialist doctrine that slowly weeded them into PRS over the years, is now exposed for all to see ………. not affordable, no security for landlords or a roof over tenants heads = meltdown misery for all.
What is the real story of how PRS landlords have been a victim? Was normal for 40k evictions per annum before all the new rules appeared on the scene. How many £m’s have landlords lost through rent arrears and damage costs over the years? Where do they get the money from? It certainly isn’t from a money tree. Its from the rent and when political policy eats into that rent, plus the outrageous tax on gross income (40% for some), general maintenance requirements, current new building requirements, BTL mortgage increases, host of regulatory licence fee’s, insurance fee’s and liabilities, it doesn’t take long to see …… is it worth being a landlord? Many don’t think so. And in the fears of £k’s of new regulatory requirements being threatened …… NUKED.
Ah say some landlords, I’ll have a bit of the new rent rises to bail me out. For some with good properties, good tenants with good incomes, you take your chances. What about those that do not fit this criteria. I’m tired of telling landlords you cannot increase the rents to keep up with the Jones’s with your existing tenants that have been brilliant for many years, they don’t have the income. I see some real outlandish asking rental prices around the country, particularly in low income areas (for a better word). The rents were historically low because that is what the local market can afford, if there has been no change ……… wait and see the number of rent arrears cases and evictions escalate.
This is a scandal that sits fair and square on the heads of all political parities’ and so called pressure groups/charities that lack foresight.
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Perfectly put and reflects the Country as I see it daily.
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