UK Rental Market Shrinks by 400,000 Properties

Introduction

Since 2016, the private rental market in the UK has shrunk by around 400,000 homes. In this article, we will look at the reasons for this trend.

Landlord Policy changes

A report by CBRE has found that policy changes over the last ten years has increased the amount of tax that landlords will need to pay when purchasing a property and on the rental income. In particular the restrictions around tax relief for interest on borrowing has significantly increased the tax liabilities of many landlords. In addition, policy changes have increased tenant protection while increasing obligations in respect of energy efficiency. While these policies may have been beneficial for renters, they have discouraged some landlords from entering or staying in the market. More regulations have made it increasingly challenging for landlords and less appealing to new landlords looking to enter the market.

Stamp Duty Land Tax

The government’s decision to introduce a minimum 3% additional stamp duty on second homes and buy-to-let properties in April 2016 has also deterred potential investors as this has increased the upfront cost of purchasing a rental property. This has discouraged landlords from expanding their portfolio.

Higher mortgage rates

In more recent times, mortgage rates have risen sharply. At the start of 2022, the Bank of England’s base rate was 0.25%. The base rate is currently 5.25%. This has led to significantly higher mortgage costs for those landlords who have brought a second home via a mortgage.

Increased inflation

Furthermore, recent inflation, particularly within the construction industry, is also increasing the general costs of owning and managing a property.

What does this mean for renters?

For renters, the shrinking rental market has drastic consequences. Reduced rental property availability will lead to increased competition among tenants which is likely to result in increased rent prices. Due to the increased price, some renters may be forced to compromise on living conditions or location because of the limited availability.

What does this mean for landlords?

For landlords, the shrinking rental market also has an impact on them. Due to market waning, landlords may struggle to sell their properties if they wish to exit the rental market.

Conclusion

To conclude, over the past 7 years, a number of factors have contributed to the increased cost of landlords purchasing and managing a rental property. The shrinking market means that many tenants are now paying more rent due to increased competition among renters.

How can we help?

Hawsons has a dedicated team of specialist property and construction accountants in Sheffield, Doncaster and Northampton.

Having an accountant who understands the challenges of this dynamic sector and is able to help you plan for the future is an advantage in a competitive environment. At Hawsons we have a great deal of experience in advising and helping businesses in property and construction and we can assist you as your business grows.