Why are landlords selling up in the UK? Drop in houses to rent explained amid housing crisis
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While the cost of living crisis has taken centre stage over the past 18 months, the UK has also been in the midst of a severe housing crisis.
Demand for homes to rent has continued to grow at the same time as the supply of let properties has declined. Recent research from estate agency trade body Propertymark has found the mismatch between supply and demand sits at 35%, with an average of 16 prospective tenants per available property.
The effect of the imbalance between supply and demand has been soaring rents across the UK - something that has forced would-be renters to seek out alternative accommodation. Number crunching by estate agency Hamptons has found there should be 105,000 more renters than there currently are, with the number of young people leaving their family home decreasing, particularly in the South of England.
It all comes as the government has announced what campaigners have described as a “once-in-a-generation” shake up of the lettings sector. Among the reforms revealed by Housing Secretary Michael Gove in May was a crackdown on ‘no-fault’ evictions - a mechanism that was used by landlords on a record number of occasions in 2022.
So, why are landlords quitting the lettings market? Here’s everything you need to know.
How many landlords are quitting the industry?
Official statistics show there were around 2.7 million landlords operating in the UK in the 2020/21 financial year. But there is no definitive, up-to-date statistic available that shows us how many landlords have quit the rental market over the past 12 months. What we do know is that several industry surveys have indicated there is currently a general move to exit the industry.
In its May 2023 property market survey, the Royal Institution of Chartered Surveyors (RICS) found the number of new landlord instructions (i.e. the amount of properties coming to the rental market) was 23% down year-on-year over the preceding three months. The number of new instructions has generally been declining at an increasing pace since 2016, according to its data.
While the demise of landlords will hardly be mourned by current and former tenants who have spent years subsidising their mortgages - sometimes in squalid conditions - the growing difference between the number of would-be tenants and the availability of properties to rent presents a serious problem for housing in the UK.
With roughly 2.7 million landlords operating (as of 2020/21), some of whom are likely to rent out more than one property, we are heavily reliant on them to put a roof over people’s heads - particularly given buying a home is beyond the financial means of many people and there is a general lack of social housing across the country.
On the latter point, their lets have become vital to some of the most vulnerable people in society. Government figures show more than 25% of households who are renting a home are receiving some form of housing benefit.
If landlords continue to leave the renting sector en masse, there is no safety net currently in place that will come to renters’ aid.
Separate research by Propertymark has found the number of homes to let at its member’s branches has “remained stubbornly low”, with an average of just nine properties available per branch as of April. While the amount of would-be tenants registering with its member’s branches is well below the record peak of 147 recorded in September 2022 - there were 118 new applicants per branch - the latest figure is 24% up year-on-year.
Going forward, research by trade body the National Residential Landlords Association (NRLA) has found sentiment among landlords is dire. In the first quarter of 2023, 33% of its members in England and Wales said they intended to cut the number of properties they rent out - up from 20% in the same quarter in 2022.
For those landlords who are sticking around, many are turning to loopholes in a bid to stay in business. In February, it was revealed there had been a jump in the number of properties being let out through companies, a development that tenant organisations warned could see landlords duck their obligations to those who rent from them.
Why are landlords selling up?
There are three major reasons why landlords are selling up across the UK. NationalWorld has listed them in no particular order:
- Retirement
According to estimates by Hamptons, 140,000 landlords retired in 2022. The estate agency says retirement accounted for 73% of all landlord property sales.
With the average age of a landlord now sitting at 60-years-old and 96,000 landlords set to hit the current official retirement age (65) each year over the next five years, it expects large numbers of those renting out properties to leave the sector over the medium-term. They are unlikely to be replaced at a rapid enough rate given younger age groups are struggling to afford to buy.
- Mortgage rates
Possibly pushing some landlords to retire earlier than they may have initially planned is the current situation with mortgages. There have been 12 consecutive interest rate hikes since late 2021, with the Bank of England base rate now sitting at 4.5% and expected to climb towards 6% by the end of 2023.
According to research by estate agency Savills that was reported by the BBC on Wednesday (14 June), mounting mortgage costs mean landlords are now making net profits of 4% on average - well below the highs of 23% seen over the previous decade and the lowest figure since 2007.
- Government legislation
As well as the renters reform bill, which looks set to regulate landlords much more tightly from late 2024, new energy efficiency requirements, a reduction in tax relief, alongside lower capital gains and income tax allowances have all served to squeeze profitability and increase upfront costs for landlords. Meanwhile, in Scotland, a temporary rent freeze introduced last September to help tenants with the soaring cost of living is also likely to have dented the profit margins on lettings.
The NRLA has described these law changes as a “perfect storm” and has urged the government to carry out a review of how they are impacting the rental sector.
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