"The net effect of both longer-term punitive measures and ‘sticking plaster’ policies such as rent freezes is a reduction in supply of desperately-needed private rental property"
It is widely acknowledged that rising interest rates have hit many borrowers hard. But the impact of higher borrowing costs on buy-to-let investors has been too easily dismissed, with tenant lobby groups and many politicians subscribing to the view that the majority of landlords have the financial resilience to weather the current economic storms.
IMLA’s Landlord Survey (December 2023) suggests otherwise. Our research, which aims to understand the true financial position of landlords, reveals that the current average annual profit of all landlords is less than £9,000 a year and set to plummet over the next two years, with leveraged landlords anticipating an 80% increase in borrowing costs.
Of course, at the same time, many tenants are struggling, with average rents reaching record levels across the country, causing a particular challenge given the wider cost of living crisis. It is fitting and proper that tenants’ concerns are raised and their needs addressed. But calls for more regulation and greater taxes on landlords risk squeezing more suppliers out of this market.
Proposals for nationwide statutory rent controls, such as those mooted by the London Renters Union and backed by the mayors of London and Manchester in February 2023, would cause further harm to the sector. The Scottish government introduced a rent freeze for sitting tenants between September 2022 and March 2023, followed by a cap of 3% on rental increases. The evidence suggests that this rapidly led to an increase in landlords selling up, with landlords accounting for 12% of Scotland’s property transactions in the year to the end of September 2023, up 3% on the previous year. In England and Wales, the proportion of landlords selling was either flat or down on a year before.
The net effect of both longer-term punitive measures and ‘sticking plaster’ policies such as rent freezes is a reduction in supply of desperately-needed private rental property – which, let us not forget, provides homes for 20% of the UK’s households. And a reduction in supply in the face of sustained demand only results in one thing: even higher rents. In Scotland, where sitting tenants are protected by the rent cap but newly contacted tenants are not, the average rental price for newly let properties rose by 12.7% in the year to December 2023, compared to 9.7% for England and Wales, according to Zoopla.
Davids outnumber Goliaths
Another misconception about the UK’s PRS is that well-heeled portfolio landlords dominate the market. In fact, our research reveals that 80% of landlords own only one or two properties, and only 13% are classified as portfolio landlords. These proportions may vary in future, but part of the PRS will always be served by so-called ‘amateur’ landlords looking to rent out properties they own but cannot live in, perhaps because they have to move location with work, they are a couple with two properties who move in together, a family home needs to be rented out on divorce or a surplus property is inherited, for example.
IMLA has consistently appealed for moderation when it comes to the treatment of these – and all – landlords, firmly believing that the solution for improving this core part of the UK’s housing landscape lies not in tax and regulation, but in building.
We desperately need a much bigger public housing sector to supply the homes Britain requires, both for rent and purchase. But even with the best political will in the world, it will take years to build adequate state housing on the scale we need. In the meantime, there is simply no sense in making it harder for the existing providers of rental properties to stay in the market and maintain current supply levels. It is in all our interests to understand the position of landlords as well as tenants and the pressures faced by both.
