"The demand for high-quality rentals is always going to be there and the government has got to find a way to attract investors who are interested in being the landlords of tomorrow"
Accountancy firm UHY Hacker Young, using data from HMRC, estimated that 70,000 buy-to-let landlords exited the PRS last year and 116,000 rental properties were lost to the sector. And figures from Zoopla have revealed that 11% of homes for sale in the UK are former rental properties.
In the first half of 2023, higher mortgage rates and tougher affordability criteria have deterred many first-time buyers from owning their own homes and kept them in rented accommodation for longer.
The result has been more pressure on the available stock in the PRS and record rent increases.
There are around 5 million households in the UK PRS, housing 19% of all households.
All of this leaves the government with a challenge: to reverse the trend of landlord departures from the sector and generate real growth.
New recruits
Neil Cobbold, managing director of automated rental payment and client accounting specialists, PayProp UK, believes the sector can bounce back and become stronger than ever – as long as the right incentives are in place.
Neil explains: “The private rented sector has been under the government spotlight in recent years and there is no doubt that this may have contributed to some landlords leaving the industry. While we welcome measures to improve the quality of housing in the PRS and strengthen tenant rights, we also believe that more could be done to both incentivise landlords to remain in the sector and to attract new investors.”
“It has been widely discussed within the industry that the reversal of Section 24 may be such an incentive for landlords to remain even with more regulation. Being allowed to deduct mortgage payments from rental income before tax would make a huge difference to landlords’ bottom lines.”
Other government measures criticised by landlords are the proposed changes to the Minimum Energy Efficiency Standards Regulations. By law, all residential rental property must have an Energy Performance Certificate rating of at least an ‘E’. The government has recently proposed that this be stepped up further to a ‘C’ or above by December 2028.
Cobbold cautions: “The measures required to achieve this new standard could prove to be too expensive for some landlords."
More rentable homes
Cobbold states: “The UK has some of the oldest housing stock in Europe and the industry believes that the government should give some thought to offering financial support to landlords who might struggle to make the sometimes significant investment required.
"Extensive insulation work and the installation of new heating systems can be prohibitively expensive – especially in those parts of the country where rents are lower and it would take far longer for landlords to see a return.”
The other factor which has hit the PRS is the lack of available housing stock – especially in places where demand is high, like the major cities.
Cobbold comments: “While house prices are falling, mortgage interest rates remain high, so first-time buyers are having to wait longer to afford them. Some workers may never be able to afford to buy their own home and some of those who could still value the flexibility of renting.
He concludes: "The demand for high-quality rentals is always going to be there and the government has got to find a way to attract investors who are interested in being the landlords of tomorrow. The country desperately needs more, newer, greener homes in the PRS – especially in areas of high population where demand has gone through the roof.”
