Market challenges could prove too much for landlords, warns expert

Property and tax expert, David Hannah outlines the issues that make the UK rental market less attractive for landlords

Market challenges could prove too much for landlords, warns expert

Soaring mortgage costs, diminished profits and government red tape could all adversely impact the UK rental market, encouraging landlords to sell up and leave the sector.

Group Chairman of Cornerstone Group International, David Hannah has outlined the issues facing the market in a frank appraisal.

Hannah said that 300,000 buy-to-let properties going onto the property market in early 2023 signalled an exodus of Britain’s buy-to-let landlords.

This came, he said, amid the government’s introduction of costly Energy Performance Certificate (EPC) changes, alongside its proposal of the Renters Reform Bill.

Further pressure on landlords was coming from the increasing costs of mortgage deals, suggested Hannah. He referenced a report from the English Private Landlords Survey, indicating that 60% of landlords across the nation had a buy-to-let mortgage and were subject to soaring rates as a result.

He believed this could be the final nail in the coffin for landlords who had already seen their profits hit rock bottom – and, as such, an uncertain future for the rental market.

"Rising rental costs in the UK are creating a dire situation for tenants, especially those on lower incomes,” Hannah said. “With the highest share of pre-tax income spent on rent in a decade, and average rents surging by 10.4% annually, affording rental properties has become increasingly challenging.

“The shortage of available rental homes adds to the problem, as demand heavily outweighs supply. This situation not only affects renters but also hinders those seeking to transition from renting to homeownership, with securing a mortgage becoming impossible for many. It is crucial to address the factors behind escalating rents, including increased demand, limited rental supply, rising mortgage rates for landlords, and potential rent control measures, to ensure long-term rental affordability."

He added: “Concerningly, I fear that increasing mortgage costs will be the final straw for Britain’s landlords. They have now experienced their lowest profits since 2007 and face further government red tape. Our research shows that many landlords were not prepared to deal with the current obstacles facing the rental market as 1 in 5 say they became landlords without the sufficient knowledge needed and have lost thousands as a result.”

Hannah explained that landlords looking to refinance their mortgage faced average rates on a two-year fix of 6.97%— up from 2.98% in July 2021, according to data provider Moneyfacts.

Five-year rates fell 0.1 percentage points on Wednesday to 6.81 per cent, compared to 3.28 per cent two years ago. In an attempt to counter rising costs, landlords are already passing this increase onto rental costs for their tenants, Hannah noted.  According to the Office of National Statistics, he said, rents rose 5.1 per cent in June, the fastest annual pace since records began in 2016.

Demand for rental properties had surpassed the available supply in many areas of the UK as landlords continued to flee the market, he further suggested.

Hannah concluded that increasing costs and red tape for landlords could make buy-to-let a less attractive option for investors and ultimately create a knock-on effect for Britain’s rental market.

Want to be regularly updated with mortgage news and features? Get exclusive interviews, breaking news, and industry events in your inbox – subscribe to our FREE daily newsletter. You can also follow us on Facebook, Twitter, and LinkedIn.