Why Landlords Are Selling Up - Bad News for Renters

Added: 2026-05-09

[00:00:01]In the past 12 months, some 254,000 BLET properties in Great Britain were put on the market. An average of 695 homes a day. This graph shows that a growing share of landlords. 26% are decreasing their portfolio. Only 8% are now increasing the number of homes to rent. The new renters reform bill is reshaping the rental market. It abolishes no fault evictions, ends fixedterm tenencies, rent review protections, and gives renters greater powers to challenge landlords for renters who have endured years of rising rents and difficult conditions. This bill aims to improve renter security and living conditions. But at a time of rising interest rates, stagnant house prices, landlords are asking the question, is it worth all the extra regulatory burdens, and higher costs? A recent survey suggested 50% of landlords are considering selling at least one property. And with house prices unaffordable, there's been a boom in the number of those living in the private rented sector. And the big question is will a decline in landlord supply have the unintended effect of actually pushing up rents in the future. Now for the landlord there are many factors all coming together at the same time to make it less attractive and this has been seen in the supply of new housing for letting which has been falling since 2022.

[00:01:36]Now in the past we have heard warnings about landlords leaving which didn't particularly materialize but now there does seem to be a movement in a negative direction. Firstly the era of big house price rises seems to be over at least at the moment. Landlords who bought back in the early 80s or early 90s would have seen huge real capital growth which made it a fantastic investment. But since 2007, real house prices have mostly fallen across the United Kingdom. In London, a major rental area, house prices have been particularly disappointing. And if you can't make an easy gain on capital gains, housing looks a lot less attractive. If you plot housing compared to gold since 2000, gold has outperformed housing. Even if you add a 2.5% return to housing, it's still pretty poor. And if you look at the return from uh global equities since 2007, you're looking at a much better real return of 5%. The return of housing is closer to 1% in real terms. Not only that, but then you have uh extra capital gains tax with the allowance been cut from 12,300 to £3,000, meaning that housing attracts more tax when you sell it. Working out the return from housing is not straightforward because there's also more than any other asset class, it entails maintenance costs, the stress of letting out and then fixing problems.

[00:03:09]And since 2015, there's been a steady increase in the costs for landlords.

[00:03:15]Before 2017, landlords could deduct 100% of mortgage interest from income. Now they only get a 20% tax credit. It means that landlords are taxed on gross income, not net. And this pushes many into the higher 40% tax bracket.

[00:03:32]Secondly, there's a proposed increase in tax on renting from 2027, an extra 2% on the basic and higher rate of income tax for letting income. But much more problematic, 2026 is seeing a really big increase in mortgage rates compared to 10 years ago.

[00:03:50]Many landlords who are on good 10-year fixed deals at very low rates will have to reortgage to almost double uh the mortgage rate and this has been worsened by an increase in mortgage rates since the start of the uh Iran conflict in late February. So effective blet rates have more than doubled compared to a decade ago. Also another underappreciated fact is that due to inflation, the cost of maintenance has significantly increased in the past 10 years. If we take all these together, we can see that despite a 33% rise in average rental income, net profit has fallen due to higher mortgage payments, higher maintenance, and higher regulation costs. Now, this does assume a landlord is buying with a 75% mortgage and there's a higher taxpayer. If you were buying with cash, obviously mortgage is not been an issue and also some tax implications can be delayed by incorporating into a company. As a result, we've seen a fall in smalltime buy to let investors but arise in professional companies who can get commercial discount rates for buying multiple homes at once. A private company can make mortgage interest fully deductible and you pay corporation tax at 25% rather than the high rate of income tax at 40%. And a recent survey of landlords suggested a high percentage of landlords are currently private buyers but in the future will make this switch to a limited company. But switching to a private company still attracts stamp duty for the transaction.

[00:05:27]And when you take money out of a private company, you are liable for dividend tax and then many of the tax advantages start to disappear. But whether you're a private individual or company, landlords have to pay significantly higher stamp duty than in the past. And this is a big deterrence to entering the market at all. For landlords, the cost for stamp duty can move up to around 10% on average UK home. If you buy a house for £500,000, that gives you an effective tax bill of £40,000 or 8% of the purchase price. So this massively increases the cost and discourages anyone entering the market.

[00:06:08]It is actually worth mentioning that the current landlord market is dominated very much by the older landlord and as these leave the market, will there be a younger generation to replace it? On top of this, there are more regulatory costs in letting out property for properties in the energy bracket. D can cost up to 6,0007,000 a year to improve to the minimum EPC standard. Now, it's not all bad news for landlords. With real house prices stagnating in recent years, even falling, we have actually seen a situation of rent rising faster than house prices. And there's been a boom in rents in recent years. partly caused by high population growth and the unaffordability of housing. It means current yields are around 7% which is actually quite high compared to previous years. And rental yield can be even higher in cheaper northern regions who are also seeing higher capital growth.

[00:07:08]So one thing about a landlord is think carefully about where to buy. Also, the Resolution Foundation reports that 84% of landlords report being profitable and 61% expect to raise rents by 5% in the coming 12 months.

[00:07:25]But another factor worth bearing in mind is it's not just about the monetary costs and monetary income, but also the time costs of dealing with renting, maintenance, and the increased number of rent reviews which might happen in the future. 24% of tenants say they may challenge any future rent increase, but this process itself is quite slow and uncertain. Definitely a downside for landlords. Now, buying shares may well give better returns when investing in housing, but it's certainly going to be a lot easier to manage. So, does it matter if landlords are selling up?

[00:08:03]Well, there are two important factors.

[00:08:06]The first is that if landlords sell, this will increase the supply of housing for sale. The overall housing stock is unaffected and this will help to keep house prices relatively lower than otherwise. It may help some renters be able to buy who otherwise will be stuck in the rented sector. But having said that, owner occupiers tend to have smaller households. So rental supply can still fall faster than the housing stock.

[00:08:35]Also, for renters who are not financially close to being able to buy, an increase in the supply of housing for sale doesn't help them really at all. In fact, they may lose out because there is a risk of higher rents if the supply of rented properties continues to decrease.

[00:08:52]And it's worth bearing in mind that renters are about four times less likely to be able to buy uh a house.

[00:09:01]Now, the good news is that the latest evidence suggests that a much feared spike in evictions and rent rises in anticipation of a renters's rights bill has so far failed to materialize.

[00:09:14]73% of local authorities recorded slower rent growth at the start of this year than previously. And this is perhaps partly due to the rental market reaching a peak of affordability and also a slowdown in population growth as net migration has fallen rapidly in the past 12 months. Rick's latest survey of the rental sector shows both a fall in tenant demand but also a substantial fall in new landlord instructions. So although rental growth has slowed, there are still positive expectations of rent rises in the coming years.

[00:09:53]So although property may be less attractive than in the past, it could still prove to be a good investment, especially if markets were to crash from an oil crisis or an AI bubble of bursting. There are some good reasons why big banks are getting into property renting because it does give relatively stable returns. What happen whatever happens to the stock market and AI, people will need to live and pay rent.

[00:10:22]And this video looks at why markets are not falling by more, but they may do soon. Anyway, thanks for watching. Do subscribe and I'll be back soon.