Should Landlords Be Exiting The PRS?

The private rental sector is key to the UK housing market – so why are so many landlords leaving it?

There is no doubting the importance of the private rental sector. It provides valuable housing for millions at a time when finding a home is anything but straightforward. Therefore, it shouldn’t come as a surprise to learn that the entire PRS market is worth a pretty penny. But just how much? Recent research now has the answer, so let’s dive into it along with some other tidbits about the market, including new advice for managing mortgage interest rates. 

So, how much is the PRS worth?

Someone decided to sit down and do the numbers, digging into the data behind the private rental sector. Sirius Property Finance, a debt advisory service, analysed just about everything from the level of stock to current market values and average yields to see how it’s all changed in the four years since 2019.  

The analysis claims that PRS stock is worth an impressive £1.5 trillion across England alone, a 30% increase since 2019

Around £575 billion is concentrated in London, although its value has only increased by 16%. The most considerable rise comes in the South West, which has seen stock value grow by 41% in the last four years.

High rents, low availability

While the UK’s rental stock is in good health, availability continues to be an issue. Of the 4.8 million rental homes, only 130,272 are listed online as ‘available’. That means just 2.7% of the rental stock is currently on the market. 

These figures come when the number of rental units is rising. Since 2019, the whole sector has grown by 2.4%, according to the research. 

  • The South East has seen the most significant rise with a 9.1% increase
  • The South West is up 7.4% 
  • And the North 3.8%

It’s not all growth, however. 

  • The East Midlands is down 9.9%
  • Yorkshire and the Humber is down 0.4%
  • The East of England is down 0.3%

Still, rental stock is up as a whole from pre-pandemic numbers. It’s important that this is maintained, to ensure that those who need a home can find one. If increasing numbers of landlords leave the sector, availability continues to be an issue for tenants, leading to further increases in rent in order to secure a home. 

Robust landlords

The increase in buy-to-let homes comes at a time when landlords are feeling the strain from all corners. A spokesperson for Sirius said:

Despite the government’s sustained attempts to dampen the enthusiasm of buy-to-let investors, the private rental sector has continued to grow in size over the last few years. This growth, combined with the high rates of house price appreciation seen throughout the pandemic, have pushed the total value of the sector to a quite remarkable level.

Yet, there were words of warning from the spokesman, who added, ‘However, previous whisperings of a hike in capital gains tax will remain a worry for those who have benefited from an increase in the value of their buy-to-let portfolio. Should these changes come to fruition in the future, we may well see many landlords scramble for the exit to avoid the government’s latest cash grab.’

With an increase in interest rates meaning that landlords are feeling the squeeze on monthly repayments, tax hikes that target landlords are the last thing that is needed. Some landlords will be looking to sell up, rather than deal with the increased interest rates and, if there is a scramble to exit the sector, that will have availability plummeting – which is bad news for tenants.

The cost of rising interest rates

Not being able to claim mortgage interest relief and the possibility of higher capital gains tax has impacted the private rental sector, as have higher interest rates. In 2022 alone, more than 211,000 buy-to-let mortgages were approved by UK lenders and occupied 13.6% of total mortgage lending for the year. 

Yet, landlords are expected to absorb the hit of rising interest rates, with some already having remortgaged at higher rates. They’ve gone from 0.5% in December 2021 to 4% in February 2023. Subsequently, there’s new advice for landlords navigating more expensive buy-to-let mortgages. 

Many professionals in the industry suggest avoiding the standard variable rate (SVR) and paying a premium. This has always been the case but takes on even more importance now that monthly mortgage costs are significantly higher on initial-term deals. 

For many, it’s also worth looking for mortgage products without early redemption fees if you’re concerned about locking yourself into a fixed term. Be sure to book a call with our team if you have any questions.

So what can landlords do?

It’s clear that landlords are a vital part of the UK housing market and to continue to lose them would hit tenants hardest, due to low availability of rental housing leading to ever increasing rents. So if you’re a landlord, wondering how you can make it worth your while in the current climate, there are a few things to consider.

Educate yourself

Be sure to stay up-to-date with the latest legislation and changes. It sounds simple, but if you overlook a key legislative change, you could find yourself heavily fined.

Education also allows you to make better long-term decisions. So having a good relationship with your insurance broker or mortgage advisor is advisable, so that you have someone to go to to ensure that you’re getting the best possible deal and can advise you when things, like interest rates, change!

If you’re looking for a new insurance broker, give Mashroom a call today!

Protect your investment

While it can feel counterintuitive to spend more at a time when we’re all tightening our belts, it’s more important than ever to protect your investment. While it can feel like a pinch to invest in something like Rent Guarantee Insurance, you will certainly feel the benefit should your tenant fall into arrears.

Make the decision to do all you can to protect your investment as early as possible. While you can’t do anything about interest rates and forces outside of your control, you can definitely ensure that rent and emergencies are covered!

Work smarter, not harder

Utilise products and services that make your life easier. It’s the 21st century – so much is out there to streamline processes!

If you’re with an agent, consider how much you’re paying them and what you’re getting for that money.  Agents charge, on average 8-15% to find you tenants, look after the property and… not a lot else. But a package like Mashroom’s 5% Rent Collection Plan is a lot cheaper and doesn’t just collect your rent, it also:

All of that means you’re prepared for anything that could go wrong and a lot of the day-to-day logistics, such as ensuring your rent is paid, are covered

Take the time to consider how you can continue to be a landlord in the current climate – we really do need landlords in the UK! But it’s also a wise move for you in the long term, as you will continue to have an asset.

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