Rental Portfolio Reduction: The Exodus of Landlords
According to a new report, landlords are shrinking their buy-to-let portfolios because they are fed up with paying higher taxes and complying with ever-changing property laws.
The study by London letting agents Benham & Reeves compared the size of landlord rental portfolios between the first quarter of 2022 and the end of the same quarter this year.
The findings showed average letting portfolios in England and Wales shrunk 5.6 per cent - equivalent to a drop in the number of properties in a portfolio from 9.1 to 8.6.
However, in some regions, the drop is far worse.
Landlords in Wales have reduced their portfolio sizes by 42.8 per cent after the Welsh government introduced RentSmart. The scheme obliges property inventors to operate with a licence. The Welsh Assembly has also introduced new letting contracts and other rules which tighten how landlords should run their buy-to-let businesses.
Exodus started with a stamp duty hike.
In the East Midlands, landlords have cut their portfolios by 33.9 per cent - from an average of 11.8 homes to 7.8 - while in the North-West portfolio sizes have gone from 10.6 homes to 8.8, a 17 per cent drop.
The study explains investors are still buying small portfolios in regions with lower house prices, which also impacts the average portfolio size.
Researchers say they first noticed rental portfolios were shrinking in 2016 when the government introduced a three per cent stamp duty surcharge for landlords.
The stamp duty hike was followed by phasing in finance interest relief. The measure taxes landlords on income rather than profits and scrapped higher-rate tax relief on mortgage interest. This was not too bad a problem while mortgage interest rates were low, but has crippled some buy-to-let landlords as rates have soared.
Now, landlords are concerned about changes the Renter’s Reform Bill may trigger with the abolition of Section 21 no-fault evictions and open-ended tenancy agreements. Alongside reforms, the government is cutting capital gains tax relief for rental investments to £3,000 in April.
Warning to government
Landlords owning properties with low energy efficiency ratings also face spending up to £10,000 a property to bring them up to a C-rating if they wish to continue letting them out.
Not every region is experiencing a landlord exodus.
Eastern England, Yorkshire & Humber, the South East and West Midlands bucked the trend, with landlords increasing their portfolios.
Benham & Reeves director Marc von Grundherr said: “It’s getting harder to be profitable as a landlord, and that impact is starting to show.
“Losing income tax relief had a big effect, while many investors are understandably worried about the upcoming changes to Capital Gains Tax, minimum EPC rules, and the elimination of Section 21 evictions.
“Declining portfolio sizes should act as a warning to the government. The tax landscape is unfairly balanced against landlords. Unless the authorities want rental stock to continue falling in the years ahead, they may need to reverse some of these hostile policies driving professional landlords away.”
How the landlord landscape is changing
Properties in an average portfolio – Q1 2022
Properties in an average portfolio – Q1 2023
East of England
Yorkshire and the Humber
West Midlands region
England and Wales
Source: Benham & Reeve
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Investing in a private rented property can be achieved in a variety of ways. Sometimes landlords inherit a property that they then turn over to renting. Sometimes owners of properties become unintentional landlords because they are unable or unwilling to sell a property at the value the market currently dictates.