‘Financial strain’ forcing landlords out of buy-to-let sector, industry warns

Landlords are being driven out of the buy-to-let (BTL) sector in record numbers as a result of the “mounting financial strain” of the investment, industry figures have warned.

According to Rightmove figures, almost a fifth (18%) of homes that are currently being put up for sale used to be rented out. This is up from 8% in 2010 and well above the five-year average (14%), although Rightmove said the latest figures were a sign of a growing trend rather than a sudden mass exodus.

London is seeing the biggest lettings-to-sales turnover, with 29% of the properties currently on offer having previously been available to rent, the property listing website has found. Scotland (19%), where lettings rules are different to those in the rest of the UK, and the North East (19%) were the regions with the next highest rate of conversions.

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It comes amid concerns that the withdrawal of mortgage interest relief and the threat of a capital gains tax (CGT) raid in next month’s Budget could increase the number of landlords quitting the rental market. The National Residential Landlords Association (NRLA) has urged Labour to bring in “pro-growth tax plans” to ensure there is enough stock to house renters.

Although it was once seen as a secure, long-term investment, returns from BTL have been plummeting in recent years. High landlord mortgage rates, the Renters Reform Bill, and the scaling back of tax breaks have served to hit returns, despite a surge in rents. These have all been blamed for a drop in the amount of rented accommodation.

Rightmove: ‘buy-to-let sector needs support’

Despite an increase in the proportion of previously-rented homes being put on the housing market, the number of new homes coming to the market has still not recovered to pre-Covid levels. Rightmove - which is currently at the centre of a takeover attempt - has found the number of homes coming to the market is still 3% lower than it was in 2019.

At the same time, the decline in the availability of rental stock is driving up rents. This, coupled with the inflation crisis and high interest rates, is likely to have had the effect of denting prospective buyers’ ability to raise a deposit.

The property listing site has argued that landlords need to be incentivised to stay in the BTL sector, and invest in more homes to ensure supply meets demand. Tim Bannister, Rightmove’s property expert, said: “A healthy private rented sector needs landlord investment to provide tenants with a good choice of homes. We’ve seen over the last few years how the supply and demand imbalance can contribute to rising rents, so there is a worry that without encouragement for landlords to stay in rather than leave the rental sector, it is tenants who will pay the price.

“However, despite the trend of more landlords choosing to sell up, it doesn’t appear to be a mass exodus, and we will need to monitor the longer-term impacts of what happens to the rental supply that is put up for sale. For example, these homes could provide first-time buyers with more choice.

“They might also be purchased by other landlords and put back into the rental market, which would signal a changing of the guard rather than a complete exit from landlords. In any case, we hope the government is considering ways it can support landlords and the private rented sector ahead of the Autumn Statement.”

Lettings industry urges government not to hike capital gains tax

Bannister was echoed by several key figures in the lettings industry. Major property services firm Leaders Romans Group (LRG) said the government should reverse Section 24. It said the mechanism is one of the “most significant” reasons for why landlords are exiting the BTL sector.

Allison Thompson, its national lettings managing director, said: “This poorly conceived policy, aimed at boosting homeownership by reducing buy-to-let competition, has instead driven up rents and forced many landlords to cut back on costs and investment in their properties. Section 24, alongside rising interest rates, is one of the greatest burdens on landlords today.

“By disallowing the offset of mortgage interest relief, landlords have faced mounting financial strain, which has contributed to the current housing supply challenges. Reforming Section 24 is key to relieving this pressure, encouraging investment in rental properties, and ultimately stabilising the market for both landlords and tenants.”

Thompson added that failure to act would lead to a “ripple effect” of soaring rents and a continuing reduction in the amount of money being invested in housing. Both of these knock-on impacts will “further exacerbate the housing crisis”, she warned.

According to estate agents trade body Propertymark, Section 24 has already seen landlords pass their increased costs on to renters. It said many landlords were now in break-even or loss-making positions as a result.

London-based estate agency Benham & Reeves said any move by Chancellor Rachel Reeves to hike CGT in her Budget could also backfire. Its director, Marc von Grundherr, said: “The potential equalising of CGT is, of course, a concern for many landlords. If the Labour government was to follow through with it, it could make for a significant increase in the tax paid by the average landlord when the time did come for them to exit the sector.

“This would be yet another blow to those who provide vital housing stock that is sorely needed within the rental sector, following a string of legislative changes already introduced in recent years to dent profitability.

“Despite this, we’re simply not seeing the exodus of landlords that is so often reported, as despite such changes, buy-to-let remains a strong investment. It’s certainly one that most take with a very long-term view and they expect ups and downs, but generally speaking, the returns are consistently good.”

The NRLA, the UK trade body representing most landlords, called on the government to develop a “housing strategy that recognises the need for more of every type of property”, such as private rented homes.

MoneyWeek asked the government whether its upcoming Budget would see any tax hikes for landlords, and if it planned to introduce any support measures to keep them in the BTL sector. A Treasury spokesperson told us: “Following the spending audit, the Chancellor has been clear that difficult decisions lie ahead on spending, welfare and tax to fix the foundations of our economy and address the £22 billion hole in the public finances left by the last government. Decisions on how to do that will be taken at the Budget in the round.”