Rising borrowing costs and regulatory changes are prompting an increasing number of landlords to exit the UK rental market. This trend is raising concerns about the availability of rental properties as new landlords hesitate to enter the sector amid economic uncertainty.

Landlords leaving the market amid cost pressures

Nick Neale, chief executive of online estate agents Emoov, has highlighted a growing reluctance among new landlords to invest in rental properties due to high borrowing costs. He points to mortgage rate uncertainty as a key factor undermining confidence in the buy-to-let market.

With the Renters’ Rights Act set to come into force next month, Neale warns that more landlords, particularly smaller investors, are choosing to sell their properties rather than continue letting. “New landlords are not entering the market now because borrowing costs are high and the return is not there,” he said. He also cautioned that if mortgage costs increase for existing landlords, even more rental stock could be withdrawn from the market.

Data reveals significant landlord reductions

Research commissioned by HMRC and analysed by Emoov reveals that nearly a quarter of private landlords (24%) plan to reduce their rental property holdings within the next year. This figure rises to a third (33%) over the next five years, signalling a sustained contraction in rental supply.

The Bank of England’s Financial Policy Committee has also issued a warning about the deteriorating economic outlook, citing the conflict in Iran as a negative supply shock that is increasing financial pressure on UK households. This backdrop of international instability compounds the challenges facing landlords and homeowners alike.

Landlords and homeowners feel the squeeze

Neale describes the current environment as one where both landlords and homeowners are being “squeezed” from multiple directions. He explained: “The warning from the Bank of England will only deepen the anxiety buyers are already feeling. If over a million households are braced for higher mortgage costs, people will understandably think twice before taking on fresh debt.”

He added that the combination of the Bank of England’s caution and government data on landlords paints a picture of a housing market under significant strain.

Pressure on the housing market from multiple fronts

The interplay of international conflict, economic instability, and domestic policy changes is creating a challenging environment for the housing market. Neale emphasised that rising unemployment, interest rate hikes, and climbing inflation are making buyers more cautious about property purchases.

He advised potential buyers to carefully consider affordability and avoid rushing into decisions, noting that costs beyond the purchase price—such as legal fees and future mortgage payments—are increasingly significant factors in the decision-making process.

What this means for landlords

For landlords, the current climate suggests a need for careful financial planning and consideration of long-term sustainability. With borrowing costs elevated and regulatory changes imminent, landlords may face tighter margins and increased risk. The trend of landlords selling up could reduce rental stock availability, potentially impacting rental market dynamics and tenant choice.

New entrants to the market may remain cautious until borrowing costs stabilise and the economic outlook improves. Existing landlords should monitor mortgage rates closely and consider the implications of policy changes such as the Renters’ Rights Act on their portfolios.

Source: Based on reporting from Property118

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