Landlords sold 35,000 more properties than they bought throughout 2022, causing Britain’s rental sector to lose 66 properties a day last year as high mortgage costs and tax changes forced more landlords to leave the buy-to-let sector according to Hamptons. It represented the largest net loss in three years as landlords accounted for 16% of property sales last year, but only 13% of purchases. Landlords continue to exit the market as high interest rates have now pushed buy-to-let rates to 5.95% – more than double what they were a year ago according to Moneyfacts.

In the current market, both landlords and tenants are struggling. Data from the Office for National Statistics (ONS) shows that tenants in properties owned by private landlords have faced the highest rise in rent since records began seven years ago. Rents increased by 4% last year as landlords looked to pass on the costs of higher mortgage rates with a quarter of tenants surveyed in December saying their rent had risen in the past six months. Becoming a buy-to-let landlord is not the desirable investment it once was, a landmark study from property experts, Cornerstone Tax, shows that 1 in 5 landlords said they became one without the sufficient knowledge needed and have lost thousands as a result.

Profits from buy-to-let properties have fallen to an all-time low according to My Auction. For the first time in 14 years, mortgage payments are exceeding rental incomes. However, there are opportunities for landlords willing to stay in the market – Zoopla shows that the stock of rental homes has been the same since 2016, as this lack of supply is pushing rents up across the country. The demand for rental properties remains high as Foxtons showed that there were 19 renters competing for every new property in January 2023 and Finbri showing that 62% of landlords experienced increased demand for their rental properties in the last 12 months.

The outlook of the buy-to-let market for 2023 is still being debated, with higher mortgage rates, greater regulation and already stretched tenants arguably making this year a tough one for landlords. Research from Total Landlord Insurance shows that 79% of landlords say they have no plans to increase or decrease their buy-to-let portfolio in the near future, but a further 17% said they planned to reduce the size of their portfolio due to the current rental market.

David Hannah, Group Chairman at Cornerstone Tax, discusses:

“Rent prices are going up because landlords’ costs, particularly as a result of interest rates, are increasing. However, this is not the whole picture as there is still a chronic undersupply of housing in the UK in the locations where people want to live. For example, rent rises in London post pandemic have been as much driven by a lack of available properties as they have been by inflationary pressure. The situation has been particularly exacerbated for houses in multiple occupation (HMO) – these are landlords who typically include the costs of energy, heating, and other bills into the rent. The soaring increase in energy costs has as a result had to be factored into the rent for these types of properties. Accordingly rent rises in these types of lets are exceeding inflation by a considerable margin.

“In terms of the rental reforms being considered, I am in favour of rogue landlords being driven out of the markets, but there are also good landlords who have bad tenants that need to be considered. The most important thing is to balance tenant rights against tenant obligations and ensure that landlords keep some of their authority. There are cases in which properties have been damaged and tenants refuse to let their landlord inspect the home, or where rent has not been paid for a considerable period of time, for example. I welcome the proposed changes of the renting rules, and agree tenants need protection, but landlords ultimately need rights too. Our study shows that landlords do need help alongside tenants as nearly 1 in 4 say their biggest mental health strain is managing their tenants.

“I think the rental market is filled with uncertainties at the moment, with rising rents making it less attractive from a renter’s standpoint and rising house prices making it less desirable for buy-to-let landlords to grow their portfolios. Our study shows that many landlords were not prepared to deal with the current obstacles facing the rental market as 1 in 5 say they became one without the sufficient knowledge needed and have lost thousands as a result.”