UK’s rental market shrinks by 400,000 homes in just seven years

The UK’s private rented sector (PRS) has seen a significant decline in the number of homes to rent since 2016, one leading real estate advising firm reveals.

According to CBRE, it estimates that 400,000 rental properties have been sold in the past seven years, as landlords face increasing costs and higher mortgage rates.

According to the report, the main factors that have contributed to the reduction of rental homes are:

• The introduction of an additional rate of stamp duty for second properties in 2016, which increased the upfront cost of buying a rental property
• The phasing out of mortgage interest relief, which reduced the tax benefits of owning a rental property
• The rise of the Bank of England’s base rate, which started in 2022 and has gone from 0.25% to 5.25%, leading to higher mortgage costs for landlords.

The firm also says that new EPC requirements and worries over the Renters (Reform) Bill are also leading to landlords leaving the PRS.

Landlords will be put under pressure to sell

CBRE is also warning that if the Bank of England base rate rises to 5.75% by the end of 2023, more landlords will be put under pressure to sell.

The firm warns that if the trend continues, the UK will lose almost 10% of its private rented households by the end of 2023.

Scott Cabot, head of CBRE’s residential research, said: “Changes to policy in the past decade have increased the amount of tax payable on both purchasing a buy-to-let property and its rental income, and ultimately have reduced the viability of buy to let investment.

“More recently this has been compounded by high inflation which has driven a rapid rise in interest rates and increased other costs associated with owning and managing a property.”

Buy to let borrowers may start to struggle

Mr Cabot continued: “Higher mortgage costs could mean that buy to let borrowers may start to struggle to meet banks’ lending criteria.

“Interest coverage ratios stipulate that the rent from the property needs to cover 125% to 145% of the interest on the loan.

“As interest rates rise and mortgage rates increase, the rent needed to satisfy these conditions moves in tandem.”

There’s not enough build-to-rent property

CBRE points to industry data that shows tenants are spending 32%, on average, of their income on rent and there’s not enough build-to-rent (BTR) property entering the sector.

It says there has been £26.5bn of BTR investment since 2014 and it remains popular with investors.

But despite the investment, there will still be up to 150,000 fewer rental homes available – even when the current BTR pipeline is completed.

Sharief Ibrahim, CBRE‘s head of residential agency, said even with a booming BTR sector, the shortage of rental homes cannot be ignored.

He said: “Private landlords still play a vital role in the provision of rental stock and the current situation appears drastic.

“Many investors were relieved when the Labour Party reversed its plan to introduce rent controls should it win the next election, but we also see the need for bold solutions and policies to ensure the supply of rental homes in the UK doesn’t completely dry up.

“These solutions could include the reintroduction of mortgage interest relief, and/or either a temporary or permanent exemption of additional stamp duty for buy to let homes.”

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