The much-publicised decline of the small-scale private landlord is leaving huge scope for professional lenders to take their place, in a ‘net positive’ for the market, according to property experts.
Private landlords are being squeezed from all directions: A combination of lower tax relief, higher mortgages and tighter regulation has continuously pushed yields down.
Amateur landlords have found these change tougher to deal with than professional landlords, leasing to slow reduction in the number of such landlords.
One third plan to decrease the size of their portfolio in the next two years. This figure has been creeping up for the last decade, standing at 22 per cent in 2021 and 16 per cent in 2018.
But this might turn out to be a boon for the UK property market, according to property expert Jamie Williams.
“The golden age of buy-to-let is over for the hobbyist investor… we’re moving away from the one-man-band landlord and toward a more corporate, strategic approach to property investment,” he said.
“These often have a longer-term outlook, better tenant management and a greater understanding of risk compared to your average Joe that wants to just rent out his old flat,” he said.
Private landlords account for about 84 per cent of all tenancies in the UK, while just under a fifth of UK homes are privately rented.
Just under half of private landlords own only one property, representing a third of all tenancies. Another 38 per cent own between two and four, according to government data.
Why are professional landlords on the rise?
The answer to this question is largely tax-based.
Private landlords are now only able to deduct 20 per cent of their mortgage interest from their rental income when calculating their tax bill, down from between 40 and 45 per cent in 2017.
They also have to pay income tax on their earnings, while companies pay the much lower corporation tax.
Then there’s the impact of tighter regulations, which professional landlords find much easier to navigate.
Jonathan Hopper, CEO of Garrington Property Finders, said that there are “thousands” of homes “being sold off by disenchanted buy-to-let investors”.
The UK’s biggest landlords, Grainger, has pointed out that while the upcoming Renter’s Right Bill bill will “professionalise the rental market and raise standards”, smaller landlords will “find the new regime challenging and will therefore accelerate their exit from the market, further constraining supply”.
Sam Humphreys, head of M&A at Dwelly, said that the increased red tape expected from the Renters’ Rights Bill “will force some amateur landlords to exit the sector”.
“However… [professional landlords] are typically well accustomed to changing government regulations and will have the resilience to adapt to the new legislation.
“[Professional] landlords are best placed to continue delivering quality, well managed homes,” Humphreys said.
Supply shortage to continue
It looks likely that the rental property will, over time, see professional landlords replace amateur landlords.
But in the short-term, the exodus of small-scale landlords from the sector will only “reduce the number of properties available and forc[e] rent upwards,” Ryan Etchells, chief commercial officer at Together, said.
Grainger has voiced a similar view: It expects the rental crisis to “worsen in the next decade” as the private rental market in the UK “faces growing demand [and] severe supply constraints”.
The overall supply of new homes for rent has been hemmed for over a decade – rental stock levels have been static at around 5.5m since 2016.
While rental inflation has slowed from its double-digit high in 2023, there are still 12 people chasing every home for rent, according to Zoopla.
That figure is down 42 per cent on 2022-24 levels but still higher than it was before the pandemic.