Home Residential PropertyBuy-To-Let The implications of a buy-to-let exodus on the housing market

The implications of a buy-to-let exodus on the housing market

by LLP Finance Reporter
27th Jul 23 12:55 pm

At the start of 2023, 300,000 buy-to-let properties went onto the property market, signalling an exodus of Britain’s buy-to-let landlords amidst the government’s introduction of costly Energy Performance Certificate (EPC) changes alongside its proposal of the Renters Reform Bill.

Adding further pressure to landlords is the increasing costs of mortgage deals, after a report from the English Private Landlords Survey revealed 60% of landlords across the nation have a buy-to-let mortgage and are subject to soaring rates as a result.

This could be the final nail in the coffin for landlords who have already seen their profits hit rock bottom. In light of the uncertain future for the rental market, Group Chairman of Cornerstone Group International, David Hannah, discusses the impacts of a buy-to-let exodus on the UK housing market.

Landlords looking to refinance their mortgage face average rates on a two-year fix of 6.97%— up from 2.98% in July 2021, according to data provider Moneyfacts.

Five-year rates fell 0.1 percentage points on Wednesday to 6.81 per cent, compared to 3.28 per cent two years ago. In an attempt to counter rising costs, landlords are already passing this increase onto rental costs for their tenants. According to the Office of National Statistics, rents rose 5.1 per cent in June, the fastest annual pace since records began in 2016.

Demand for rental properties has surpassed the available supply in many areas of the UK as landlords continue to flee the market.According to Hamptons, almost 100,000 landlords per year are expected to leave the market in the next half-decade, potentially leading to inflated prices.

Hannah explains that increasing costs and red tape for landlords could make buy-to-let a less attractive option for investors and ultimately create a knock-on effect for Britain’s rental market – impacting 8.5m private renters across the nation.

Chairman of Cornerstone Group International, David Hannah said, “Rising rental costs in the UK are creating a dire situation for tenants, especially those on lower incomes. With the highest share of pre-tax income spent on rent in a decade, and average rents surging by 10.4% annually, affording rental properties has become increasingly challenging.

“The shortage of available rental homes adds to the problem, as demand heavily outweighs supply. This situation not only affects renters but also hinders those seeking to transition from renting to homeownership, with securing a mortgage becoming impossible for many. It is crucial to address the factors behind escalating rents, including increased demand, limited rental supply, rising mortgage rates for landlords, and potential rent control measures, to ensure long-term rental affordability.”

“Concerningly, I fear that increasing mortgage costs will be the final straw for Britain’s landlords. They have now experienced their lowest profits since 2007 and face further government red tape. Our research shows that many landlords were not prepared to deal with the current obstacles facing the rental market as 1 in 5 say they became landlords without the sufficient knowledge needed and have lost thousands as a result.”

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