As experts predict that 46,000 landlords will quit the market this year, the question is this: is the UK private rented sector shrinking – or just changing?
In a report released earlier this month, estate agency Hamptons predicted that the industry will lose 3,800 landlords each month in 2022. The numbers are just the latest to suggest that the private rented sector may be shrinking, something industry bodies say is down to tougher regulation on landlords.
Meanwhile, rising interest rates are making buy-to-let investment less profitable, leading more landlords to consider selling up. Buy-to-let investors are more likely to have interest-only mortgages than homeowners, meaning that their monthly payments are more affected by interest rate changes. Economists expect the Bank of England to hike interest rates by another 0.5% in September, having already taken them from 0.25% to 1.75% this year.
But perhaps contrary to expectation, the Hamptons figures don’t necessarily spell doom for the private rented sector. Data from HMRC suggests that there are around 2.65 million landlords in the UK. A loss of 46,000 landlords would be about 1.7% of them – still a significant amount for a sector already facing supply shortages, but not a collapse in itself. Moreover, a loss of landlords may not directly correlate to a loss of rental housing if other landlords are buying their properties to grow their own portfolios.
In fact, the Hamptons data expressly didn’t cover purchases of new-build properties to rent, meaning it overestimated the net loss. New builds are becoming an increasingly important source of supply in the private rented sector, thanks to the strong growth of Build to Rent (BTR).
Estate agency Savills says that 225,000 BTR homes had been delivered or were in planning at the end of Q1 2022. The number of homes actually delivered still only stood at 72,668 – a tiny proportion of the 4.4 million households renting privately in the UK – but the accelerating development pipeline means that it will become a more and more significant part of the private rented sector.
For those landlords willing to deal with increasingly complex regulation – perhaps assisted by expert letting agents – buy-to-let can still generate good returns. Rents are increasing at their fastest rate in 15 years according to The Deposit Protection Service. However, the market is likely to continue to consolidate as small BTL investors are replaced by institutional investors and dedicated, full-time landlords.
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Landlord profits “could turn negative” if base rate reached 2.5% – This Is Money