Small landlords have long been the backbone of the private rented sector (PRS), but recent challenges are forcing many experienced investors to reconsider their positions. Rising costs, stricter regulations, and the removal of Section 21 eviction rights are contributing to a significant contraction in the sector, with many landlords opting to sell their properties.

Pressures Facing Small Landlords

Recent surveys reveal a troubling trend: older, experienced landlords are increasingly exiting the market. This is not merely a case of over-leveraged or inexperienced landlords leaving, but a widespread departure of some of the most stable providers in the rental market. The cumulative effect of higher mortgage rates, tougher regulations, and the abolition of Section 21 ‘no fault’ evictions is reshaping the rental business model in England.

Section 21 previously allowed landlords to regain possession of their properties without providing a reason, offering a straightforward route to deal with problematic tenants. Its removal has shifted the risk profile of renting, leaving landlords exposed to lengthy and complex legal processes when seeking possession.

The Shrinking Private Rented Sector

According to Savills, approximately 700 rental homes are being put up for sale each day. This trend is exacerbated by the upcoming 2030 deadline requiring rental properties to meet an Energy Performance Certificate (EPC) rating of ‘C’. Unlike owner-occupiers, landlords must invest significant sums in retrofitting properties to comply, even when such upgrades may be physically or financially unfeasible.

For many older landlords, the choice is stark: sell while the market remains strong or face substantial capital expenditure with little prospect of recouping costs. The government’s focus on protecting tenants from landlords has overlooked the risk of reducing the availability of rental homes, potentially leading to a housing shortage.

What Can the Government Do?

To prevent a collapse in PRS supply, decisive government action is needed. Three key measures could help stem the loss of approximately 220,000 rental homes:

• Judicial reform: With Section 21 abolished, the Section 8 possession process must be improved. A ‘fast track’ court system is essential to ensure possession orders for mandatory grounds, such as rent arrears, are granted within weeks rather than months. This would reduce the legal risks landlords face and encourage them to remain in the sector.
• Section 24 tax changes: The current tax rules prevent individual landlords from deducting mortgage interest as a business expense, creating a punitive environment for small portfolio owners. Reversing or modifying Section 24 would enhance the financial viability of small landlords and signal government support for their role.
• Retrofitting grants: If higher EPC standards are to apply exclusively to the PRS, financial incentives must accompany these requirements. Dedicated grants or 100% first-year capital allowances for energy efficiency improvements would help landlords upgrade older properties without forcing mass sales.

These measures are not excessive demands but necessary steps to address the sector’s challenges. Unfortunately, government and tenant advocacy groups have yet to fully recognise the scale of the issues facing small landlords.

Balancing Risks and Responsibilities

Recent media coverage highlights landlords’ concerns about being penalised for minor administrative errors, such as paperwork or information sheet omissions. Without swift court action, rent arrears pose a serious commercial risk, underscoring the need for robust tenant referencing, despite government hesitancy due to discrimination concerns.

Additionally, tenant mobility—with renters able to leave on two months’ notice—contrasts with landlords’ longer, more formal possession processes, creating an imbalance that fuels frustration.

The PRS decline may not be sudden but gradual, with landlords selling selectively, avoiding higher-risk tenants, or ceasing investment altogether. This trend is not confined to England; landlords in Scotland, Wales, and Northern Ireland face similar challenges.

If governments across the UK continue to treat small landlords as a problem rather than partners, the result will be a housing crisis that cannot be easily resolved.

Source: Based on reporting from Property118

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