One-in-four landlords are planning to sell a property in the next 12 months as they face rising costs, tax increases and new legislation that could affect their business, a survey reveals.
The Simply Business Landlord Report 2023, which surveyed almost 1,500 landlords in August, shows that the buy to let market is facing several challenges that could force many landlords to exit the sector.
The key reason for selling is the prospect of the Renters (Reform) Bill which will scrap Section 21 evictions and make it easier for tenants to keep pets.
This was cited by 49% of those planning to sell.
‘No shortage of challenges facing the nation’s landlords’
The chief executive of Simply Business, Alan Thomas, said “a combination of economic uncertainty, changing regulations, and rising costs means there’s no shortage of challenges facing the nation’s landlords in 2023. Landlords and tenants still need clarity from the government on the future of energy efficiency rules and more details about the Renters (Reform) Bill. Although the vast majority of landlords will welcome increased standards across the market, more details are needed so they can prepare for the biggest changes to tenancy law in a generation.”
Considering all this, it’s unsurprising that two-thirds of landlords are concerned about the future. That being said, the long-term stability offered by property ownership means that 50% still think buy to let is a good investment.”
Reasons for landlords in the UK to sell up
Other reasons for landlords in the UK to sell up include rising interest rates and mortgage costs (43%), and tax increases (32%).
The report also found that almost one in 10 landlords have sold a property in the last 12 months.
The potential exodus of landlords from the rental market could have a negative impact on the supply and demand of rental properties, pushing up average rents, which are already at record highs, the report says.
According to Simply Business, more than two-fifths (42%) of landlords consider the rising cost of being a landlord as the single biggest threat to the buy to let market.
In fact, 31% have seen their monthly buy-to-let mortgage repayments increase in the last 12 months, with monthly repayments rising by £1,000 or more for 5% of landlords.
As a result, almost half (47%) of landlords have increased their tenants’ rent, while only 4% have lowered them.
How landlords feel about the Renters (Reform) Bill
The report also reveals how landlords feel about the Renters (Reform) Bill, which is expected to bring significant changes to the private rented sector (PRS).
The bill has been welcomed by many tenant groups and campaigners, who argue that it will improve the security and quality of renting.
However, many landlords are concerned about the implications of the bill for their business and their rights as property owners and the survey reveals:
- 66% regard constantly changing and confusing government legislation as one of their greatest challenges
- 63% think landlords will increase rent to cover the increased risk of property damage caused by pets
- 54% expect landlords to sell up and leave the market as a result of the changes to eviction laws
- 20% see the Renters (Reform) Bill as the single biggest threat to the buy-to-let sector.
Where Are the New Landlords Going to Come From?
The lack of available housing stock is creating huge problems throughout the Private Rented Sector, including the supply chain, a leading industry figure has warned.
Daniel Evans, chair of the Association of Independent Inventory Clerks, said “we all know that tenants are struggling with record rent rises. But every single company that supplies the sector is going to struggle because too many landlords are leaving or have already left, and nobody knows where the new landlords are going to come from. Whether it’s inventory companies, energy assessors, maintenance firms or letting agents, themselves, the whole sector is going to struggle unless the Government can change tack and begin to attract new landlords with more properties to rent.”
Evans blames changes in tax law, tenant-friendly proposals in the Government’s new Renters (Reform) Bill and incoming energy efficiency regulations for creating the perfect storm in the rental market.
“Nobody knows how many landlords have left or are about to leave.”
One large firm of accountants, analysing HMRC data reckoned 70,000 landlords exited the PRS in 2022 and it looks as though the situation is getting worse.
“Rents are continuing to rise and demand is sky high.
The hikes in interest rates have made would-be buyers remain in rented accommodation for longer and now there are dozens of people chasing every available rental property.”
Evans believes that one of the biggest barriers to landlord recruitment is the changes in tax regulation.
Since April 2020, all buy to let landlords have had to pay tax on all their rental income although they do receive a tax credit worth 20% of their mortgage interest payments.
“The first thing the Government should do is U-turn on that tax policy.
Landlords should be able to offset all their mortgage costs against tax.
The new rules mean that landlords who pay higher rate tax have had to pay substantially more and some who were in the lower band have been pushed into paying the higher rate.
Profits have been squeezed for many landlords and high tax rates aren’t going to attract new ones.”
The new Renters (Reform) Bill has been described as the most radical shake-up of the PRS in a generation.
It proposes a number of new measures including the abolition of Section 21 – so-called ‘no-fault’ – evictions which many landlords oppose.
The Government has described the Bill as ‘bringing in a better deal for renters.’ And its own Impact Report on the economic effects of the legislation have estimated that it is likely to cost letting agents £278.7m over 10 years, as a result of ‘reduced use by landlords’ because fewer tenants will be moving.
Another Government measure is the proposed change to the Minimum Energy Efficiency Standards (MEES) Regulations designed to introduce an Energy Performance Certificate rating of ‘C’ for all PRS homes by 2028 – although Housing Secretary, Michael Gove, has recently queried whether this deadline is realistic.
Evans also stated “the problem here is that a lot of landlords who were worried by this rule change may have already sold up and left or are in the process of doing so. Any slight relaxation of the rules now isn’t going to tempt new landlords in.
We have to face facts.
A lot of our housing stock is old and needs improvement to save energy. But the Government should be offering some financial support to achieve these targets. If that was in place, the sector might look more attractive. But the bottom line is that we’re not building enough houses.
If more rentable homes were built and they already had the energy efficiency standard, then more landlords might consider buying them if they could see a decent return on their investment. Landlords have been made to feel like they’re public enemy number one and, for the vast majority of them, that’s totally unfair.
The PRS is a vital part of the country’s overall housing strategy, if we’re not careful, it’s going to be damaged beyond repair.”