Landlords are selling their rental properties. Should renters worry?

Landlords are leaving the private rented sector. According to recent research by the Association of Registered Letting Agents, (ARLA Propertymark), April saw the highest number of private landlords selling their buy to let properties since records began. Five landlords exited the market in April, for each estate agency branch surveyed as part of the report. 

What’s causing Landlords to leave?

The supply of rental housing is being impacted by increasing regulatory costs for landlords, and tax changes which make buy to let properties more expensive for individual landlords to run. Complying with expanding Houses in Multiple Occupation (HMO) rules can cost landlords thousands of pounds. And in addition, landlords will soon no longer be able to claim mortgage interest payments as a tax-deductible cost when running their properties.

What does this mean for renters? 

As landlords leave the market, it does present a real risk to renters. The cost of living in major cities is already obstructively high for many renters. It is unclear if costs will continue to rise indefinitely (as a proportion of average incomes), or if the supply of rental housing from other sources will increase to make up for the private landlords exiting the market. To add further pressure, demand from tenants is increasing, with the number of tenants registering to find a home with estate agents rising by 9 per cent in April 2018. This, coupled with falling supply has had an impact on rents. Over one quarter of tenants with contracts renewing in April experienced annual rent hikes. 

Although demand is continuing to rise and supply is not necessarily keeping up, there are things that renters can do if they find rental prices getting more expensive. Many of the landlords who use Ideal Flatmate also report anecdotally that demand is still not as high as it has been in previous years. And they report increasing competition among HMO providers (conversely to what overall statistics report). 

One solution for renters is to look beyond the obvious in terms of location. Prices rise fastest in traditional rental hot spots, and your ideal neighbourhood could actually be outside the area you are searching. Some options which are physically further away from where you work, may in fact be an easier commute or more convenient. For example, living in one of London’s outer zones, in areas like Orpington or Croydon, you can get in to the centre of London faster than you can from some zone 2 locations. Have a look at the transport routes that would work for you, and see if you are missing any potential neighbourhoods where your money can stretch further. In general renters should do as much research as possible online in order to find suitable properties in their budget, before going to viewings (which take up time and effort). Researching thoroughly online will allow you to survey a broad section of the market and get the best deal possible.  

Should we be worried? 

Increasing rents and restrictions to supply are not a good thing, however, there are reasons why we should not be worried about some landlords leaving the buy to let market. Firstly, this isn’t really a mass departure yet. What we might be seeing is a correction in the market. Accidental landlords, or those whose properties were not particularly profitable to run in the first place, are seeing now as a good time to leave the market. This is ahead of the tax changes which might push their investments over the edge to loss-making territory. There are still over two million private landlords in the UK, according to research by Paragon. And private landlords still provide more than 9 in 10 properties in the private rented sector. As such, a few thousand leaving the market as reported by ARLA is not a mass departure. In addition, agents surveyed by ARLA are still managing roughly the same number of private rented sector properties, with agency branches managing on average 179 per branch (the same as April last year). This also suggests that most of those landlords with professional management in place are remaining in the market. 

Secondly, new types of rental housing are gaining traction. There are over 100,000 build-to-rent and co-living properties in planning or construction in the UK at present. These are properties being developed by large institutional companies and investors. They are being developed specifically for renters, and come with professional management and multiple added benefits for tenants. While this does not solve the housing market shortage on its own, they help speak up some of the rising demand in the market. 

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