The UK’s rental market is facing a huge shift as an ever-growing number of landlords are choosing to exit the industry—a trend that has been dubbed the “landlord exodus.” This phenomenon, which has been preceded by a combination of stricter regulations, rising costs, and changing tax policies, is reshaping the landscape of property investment. For years, buy-to-let properties have been a reliable source of income for landlords, but growing financial pressures and changes to the law are making it a less attractive option.
As landlords sell off properties, this exodus could have wide-ranging effects, not only for the housing market but also for tenants, rental prices, and the broader economy. In this blog, we’ll explore the reasons behind this trend, its potential long-term consequences, and what it means for the future of the UK’s property sector.
How has the market changed in recent years?
The UK’s rental market has seen some big changes recently, and it’s making waves for both landlords and tenants. Some of the big shifts include:
- Soaring rents: According to research from Hometrack, London has seen a huge 15.2% jump in rent prices, with the average now over £2300 per month. Rents outside London are jumping up too, with the South East and South West now crossing the £1000-per-month mark. Even historically cheaper regions like Scotland and the Midlands are seeing an increase.
- Demand outstrips supply: With fewer landlords investing into new properties because of things like rising mortgage rates and tighter regulations, there aren’t as many properties available. Also, a lot of properties are being turned into short-term holiday let, which often bring in more cash than a standard rental.
- Affordability for tenants: Rising rents are a huge issue for many people and it can be up to 30% of a person’s income, and in London it can be over 40%, according to Zoopla.
What new regulations are in place for landlords in 2024?
There are a number of new regulations in place that aim to improve tenant rights and property standards. Some of the biggest changes include the abolition of no-fault evictions, controls on rent increases, and stricter property maintenance requirements. Landlords are also now not allowed to refuse tenants based on factors like having children or receiving benefits. These regulations are positive for tenants, giving them better protection, but they may create new challenges for landlords in terms of issues like compliance and property management.
The potential rise in Capital Gains Tax will also have a marked effect on landlords. Currently, landlords pay either 18% or 28% on gains from property sales, depending on their tax bracket. If CGT rates were to rise, they may be looking at much higher tax bills if and when they choose to sell up. Similarly, a higher CGT rate would discourage landlords from keeping their properties, particularly if property prices increase. The longer a landlord holds a property, the higher the gains, and the bigger the tax charge if the property is sold.
Is it still worth doing buy-to-let?
As we’ve mentioned, there are a few factors for buy-to-let landlords to consider if they are to remain in the industry and see success. Higher mortgage rates, regulatory changes, and tax burdens are among the most prevalent, but that’s not to say that the market is dead in the water.
Despite the rising costs, there is still a demand for rental properties, especially in areas like London and the South East. With rental prices increasing, landlords can still make a steady income if they can manage the initial costs.
There may be a bright future for landlords willing to invest on a long-term basis. UK property prices have historically increased over the long term so, if you are willing to invest for a decade or two, you might be able to reap the benefits later down the line, particularly if investing in urban areas where property values rise more quickly.
Landlords might also want to consider the build-to-rent sector as it is seeing substantial growth. Build-to-rent offers a less hand-on approach to property management, with builds often managed by professional companies who take on the administrative burden themselves.
What should landlord insurance cover?
For landlords sticking it out in the rental game despite the growing challenges, landlord insurance is a must-have safety net. With rising costs, stricter regulations, and unexpected tenant issues, protecting your investment is more important than ever. Landlord insurance is specifically designed to cover those unique risks, like property damage, rent arrears, or even legal headaches with tenants.
One of the biggest perks is that it can cover you if your rental property becomes uninhabitable due to things like fires, floods, or other disasters. You won’t have to lose out on rental income while the place gets fixed up. Plus, many property owner insurance policies offer protection if tenants stop paying, meaning your cash flow won’t take a hit if something goes wrong.
And let’s not forget about legal coverage. With new rules constantly coming into play and the possibility of tenant disputes, having legal expenses covered can save you a ton of hassle—and money.
In short, if you’re planning to stay in the rental market, having the right rental property insurance is essential. It helps protect your investment, keeps your income steady, and gives you peace of mind in an increasingly unpredictable market.