Why the worst of the landlord exodus may be over

Telegraph

2 days ago

For years, the rental market has been battered by an exodus of landlords as successive governments' crackdowns have made it ever tougher to turn a profit.
The number of UK properties available to let hit an all-time low of 284,000 in March, tumbling 18pc in a year, according to analytics firm TwentyCi. The figure is 23pc lower than before the pandemic.
The market has been saturated by the huge number of ex-rental properties that have been put up for sale. In the first quarter of this year, 15.6pc of properties newly for sale had been rented at some point during the past three years, up from just 9.3pc at the start of 2023, according to TwentyCi.
The supply shock has driven up rents, which were 4.5pc higher on average in the first quarter of 2025 compared to the same period the year before, according to Rightmove data.
But the worst of the landlord exodus may have passed – and pressure on tenants may begin to finally ease.
Smaller landlords squeezed out
It has been a tough period for landlords. Tax credits on mortgage interest for landlords were gradually slashed between 2017 and 2020, down from 40pc for higher-rate taxpayers to a flat rate of 20pc.
Interest rates leapt, with buy-to-let mortgages at the sharper end of the increases, squeezing landlord profits even as rents rose. And thanks to Chancellor Rachel Reeves's maiden Budget, landlords now pay an extra 5pc stamp duty surcharge on additional property purchases.
A major sweep of reforms designed to protect tenants was introduced to Parliament in 2023, and is set to take effect in July, which will ban no-fault evictions, fixed-term tenancies, bidding wars and mid-contract price hikes.
Rental properties that fall short of energy efficiency standards are also set to be banned by 2030, with landlords facing an average bill of £10,000 to make sure their homes are compliant.
The tax changes that began taking effect in 2017 arrested the growth of the private rental sector, which has been split between landlords who can afford to operate in a much tougher environment, and those that cannot.
This has caused it to undergo a major restructuring in recent years, explains Richard Donnell of Zoopla. Smaller landlords have struggled and sold up while larger ones have actually grown.
'The number of landlords with one or two properties has fallen, as the smaller landlords have been more likely to leave. They didn't buy a property to have as a business… Almost 40pc of landlords bought their first property to live in, so there are a lot of accidental landlords in the business.'
In 2016, over 60pc of landlords owned just one property, and under 10pc of landlords owned five or more – today, just 45pc of landlords own a single rental property, while 17pc own five or more.
More significantly, single-property landlords are responsible for just 21pc of tenancies, while the minority of landlords with five or more properties provide nearly half. This change in the make-up of the rental sector has made it more resilient, and it has adapted to the challenges it faces today, argues Donnell.
'We're coming up to a decade since the private rental sector's growth began to stall,' he adds. 'I think we're through the worst of it now.'
Many landlords who only owned one or two properties may have initially purchased them for the potential for house price growth. But that has stalled in recent years – the average UK house price jumped 10.4pc in 2021 according to Nationwide, but was 4.7pc last year.
As mortgage rates have risen, smaller landlords with higher debt ratios have seen their margins plummet. Today, just 30pc of landlords have mortgages with a loan-to-value of over 50pc, according to Zoopla.
Donnell adds: 'Back in the day, house prices were roaring away, and [landlords] didn't need to think about cash flow. Now, you need to have low levels of debt to make it work.
'Those who bought properties to live in and ended up renting them out [have been forced out of the market by] tax changes, rising running costs, and mortgage rate changes.'
Threats are not existential for remaining landlords
The larger, wealthier landlords that remain in the sector are more equipped to deal with the challenges, says Lucian Cook, of estate agent Savills.
'Wealthier landlords can deal with higher levels of regulation – they can spread risk with some tenants who do not perform across a wide number of properties. It is much more painful if you have bad tenants and just one or two properties.' Landlords with larger portfolios can also deal better with higher energy standards, he adds.
'If you're a landlord without lots of debt and leverage, the Renters' Rights Bill [due to come in later this year] shouldn't scare you too much,' adds Richard Donnell.
The shift towards a more professional sector can also be seen by the rise in the number of landlords setting up limited companies to make their businesses more profitable, which is at a record high, according to data from estate agent Hamptons. Around 61,000 limited companies were created in 2024 for buy-to-let purposes, up from just 50,000 the year prior.
'[To shift into this company structure] is really expensive because of stamp duty and capital gains tax,' explains Hamptons' Aneisha Beveridge. 'Landlords wouldn't do that unless they were planning on staying in buy-to-let for a few years. They are adapting and taking shelter in these limited companies instead of offloading entirely.'
Gross annual yields from residential rental properties are on the rise – in Manchester, they sit at 6.9pc, up from 6pc in 2022, according to Zoopla's rental index. In London, yields remain relatively weak at 4.9pc, but have risen from under 4pc in 2021.
'The undersupply of private rented stock has been entrenched,' adds Cook. 'The landlords who have remained in the sector have benefited from some rental growth along the way. Even the more indebted ones, with mortgage rates falling slightly, combined with rental growth, have strengthened their resolve somewhat.'
A boost for first-time buyers
While landlords that remain in the rental sector are unlikely to be forced out of it, the growing barriers to entry are putting off new ones, Beveridge explains.
'The hurdles to invest in buy-to-let are much higher; you have to know what you're doing now more than ever before. Just 10pc of homes are being bought by landlords.' This is a record low, down from 16pc in 2015.
Donnell adds: 'Consumers are waking up to the running costs of property. Higher mortgage rates, gas bills, council tax, maintenance… Everything is going up.'
A sluggish sales market has been made worse by a hike in stamp duty, including for thousands of first-time buyers, some of whom face an additional £6,250 in taxes. This has meant that some landlords have only held on to their properties as they have not been able to fetch a price they are happy with.
But this may be about to change as the Bank of England relaxes stress-testing, with lenders set to allow borrowers to take out mortgages of up to £40,000 more than previously allowed. This will give first-time buyers at the top of the rental market a boost, many of whom will be looking at purchasing previously rented homes, as they tend to be cheaper.
'A relaxation of mortgage regulations, which gives first-time buyers more buying power to step into the shoes of buy-to-let landlords, means you could have a second wave of the less committed landlords looking to sell,' adds Cook.
Beveridge points out that there may be a number of landlords who are yet to refinance on to more expensive mortgages.
'It won't be until 2027 that that will be fully bedded in, due to five-year fixed rate mortgages [which began in 2022]. We might see some people choose to sell as a result of that, but for the majority of people it's already happened.'