Challenges Facing Small Landlords in the UK Rental Market: Calls for Reforms to Stimulate Housing Supply and Benefit Renters

The UK rental market is currently experiencing a great deal of turmoil, with small private landlords facing tough decisions on whether to enter the buy-to-let market, or even to keep their existing buy-to-let properties. According to Zoopla in figures just announced last week, only 10% of buyers looking to buy in 2023 are buy-to-let investors. As small private landlords ourselves, we've seen the impact of rising mortgage interest rates firsthand. Many landlords, like us, are facing hikes of over 100%, as mortgage teaser rates come up for expiry. This is leading to an exodus of private landlords from the market which will inevitably have a further impact on rental prices, as supply dwindles.

One of the key issues facing landlords is the ever-increasing regulation. For example, the proposed EPC shakeup, which will require all rental properties to meet an EPC rating of C or above, will make large swathes of the available housing stock for tenants simply unsustainable for landlords to maintain. Whilst it might feel idiosyncratic to feel sympathy for so called ‘wealthy’ landlords, each property that they own is effectively a small business and therefore, they need to return some profit on the initial investment, or at the very least, break even.

As a result of these changes, many landlords are being forced to sell their buy-to-lets as the rising costs of mortgages along with the increased regulatory measure make them unviable. This could be positive for first-time buyers, as sale prices could soften with an oversupply of available homes. However, the same first-time buyer hopefuls will be faced with rising rents throughout their tenancies, slowing down their savings capabilities. Additionally, the oversupply of stock in the sales market is not likely to be the turn-key properties first-time buyers would ideally want to see. Only time will tell if unwanted buy-to-lets make appropriate first homes for cash, and time-strapped first-time buyers.

We believe that we need to see a reversal of the tax laws around mortgage interest payments. This will make buy-to-lets (just about) viable again and will provide some much-needed stimulus in the buy-to-let sales market with a return of new landlords entering the market. This, in turn, will encourage more residential development in London, creating both homes that first-time buyers and private landlords can afford, as well as opportunities for institutional investors to create more rental homes.

While there are some reasons to be positive about being a landlord, such as the potential for long-term capital appreciation due to the on-going undersupply, the current challenges in the rental market are making it difficult for small private landlords to survive. With rising mortgage interest rates, increasing regulation, and tax laws that make it difficult to turn a profit, it's no surprise that few landlords are entering the market while many landlords are exiting. We need to see changes that will make buy-to-lets viable again, and encourage new landlords to enter the market, which will benefit both renters and first-time buyers looking to get onto the property ladder.

Anyone considering buy-to-let today, should consider buying in a limited company as there are tax advantages to doing so. However, do bear in mind that there are fewer lenders for limited companies, and the available products through these few lenders offer considerably higher rates than if you were to buy in ones personal name.

Of course, some may believe that capping rents in London will slow down rent inflation, but such a policy would only turn more landlords away from renting their properties out, exacerbating the supply issue further. Standard economic theory is that rent control does not work, because if you force rents down, landlords simply decide not to rent out their properties, which reduces the amount of rental property available. In other words, we need to significantly increase supply before we even consider rent controls.