Landlords come under pressure as costs, regulation and global uncertainty mount

This perfect storm is witnessing many buy-to-let landlords leaving the sector. Taxation, increasing costs, tough new regulations, and now an international conflict are driving some of them out. 

The UK private rented sector is in the grip of its most hostile environment in years. Consecutive budgets have done nothing to ease the strain on buy-to-let landlords’ finances, on the contrary, they’ve doubled down on them. Add to that, tough new regulations that are looming in the form of a Renters’ Rights Act, along with steep EPC retrofit costs for some, needed to meet tough new environmental standards, and is it any wonder landlords feel targeted?

Now we’re facing a geopolitical wildcard thrown in from left field, in the form of an Iranian war. This is pushing mortgage rates back up again. And fuel costs are rising again, just as landlords were beginning to breathe a sigh of relief because inflation and mortgage rates were on a downward trajectory. 

More rental homes are being put on the market for sale – mainly by small-scale landlords with one or two properties - as a figure of 93,000 landlords exiting the sector in 2025 is being bandied about. It means something like 200,000 rental homes could have disappeared from the private rented sector (PRS). The exact figure is difficult to ascertain but we know the number is a big one and it will have a severe knock-on effect on the lives of tenants.

It’s not all doom and gloom of course. There are numerous ways of mitigating the charges and dealing with the regulations. But there’s no doubt about it, running a buy-to-let business is getting harder, more demanding and less profitable for the small-scale landlord. 

The tax hikes keep increasing

The cumulative tax burden on private landlords has increased steadily budget by budget, stretching out over a decade. Rachel Reeves’ measures are just a continuation of the continuous ratcheting up the tax burden on private landlords, imposed by successive governments. 

The key tax measures impacting the sector started with the Section 24 mortgage interest restrictions and the abolition of the 10 per cent depreciation allowance. Since then, adjustments to capital gains tax rates (CGT) on residential property disposals. There are at 18 per cent for basic rate taxpayers and 24 per cent for higher rate taxpayers, a charge that’s squeezing potential returns on final exit.

More recently the stamp duty land tax (SDLT) surcharge on purchasing second homes was raised from 3 per cent to 5 per cent. And the 2025 Budget confirmed that from April 2027 property income will be taxed at rates two percentage points higher than other income. This surcharge will hit around 2.4 million landlords. 

There’s even been threats of adding national insurance (NICs) to landlords’ incomes, and coming down the track is Making Tax Digital. This is for taxable income starting from April this year, for those earning over £50,000 in gross rent. This figure will gradually be reduced over the years until eventually if will probably affect everyone in the industry.

Incorporation (forming a limited company) is seen as the answer to avoiding much of the tax anomalies, but it’s not for everyone, and transferring existing investment properties into a company is not tax efficient. 

Next comes the regulatory challenge

The Renters' Rights Act has been seen as the final straw for many landlords. Others, I’m sure, are still unaware of the full implications of this far-reaching legislation. It puts a lot of power in the hands of tenants and brings with it lots more administrative work. 

From 1 May 2026, all Assured Shorthold Tenancies (ASTs) will automatically convert to rolling periodic tenancies. That is, indefinite tenancies with no fixed end date. Also, Section 21, the 'no-fault' eviction process, is to be abolished. 

After the launch date landlords will evict only by using the new Section 8 grounds and a court hearing will be involved. This will undoubtedly make it more difficult and more expensive to remove a delinquent tenant. 

Landlords will be able to sell or re-occupy the property themselves (or a close relative can) but they must give four months' notice, and they can’t do it in the first 12 months of the tenancy. They cannot then re-let – if for example a sale falls through - for a period of 12 months after regaining possession to sell. 

Rent increases are restricted to once per year, they can only be raised to market level and are subject to 1^st Tier Housing Tribunal oversight if the tenant appeals the increase. In addition, in the future landlords will be required to meet the tough new Decent Homes Standard and an EPC “C” standard or equivalent by 2030.

A mandatory national landlord database is to be set-up and a Private Landlord Ombudsman service made available to tenants, funded by landlord contributions. These services will be rolled out after the Act goes live, perhaps from late 2026. This compliance burden will not be insignificant for landlords on landlords or their agents. What’s more, penalties for non-compliance will be stiff fines of up to £40,000.

The ticking EPC time bomb 

The looming deadline to meet the higher standards has resulted in an exit decision for many landlords. There is an overwhelming proportion of older Victorian era housing in the PRS, most of them with solid uninsulated walls and floors, meaning expensive refurbishment costs to meet the required standards.

All landlords must bring properties to EPC C or above by 1 October 2030 or register an exemption. There are estimated to be around 2.5 million rental homes in England that will require improvements according to the NRLA.

The spending cap is to be £10,000 per property, but for the older Victorian terraces, flats above shops and HMOs, that amount is unlikely to be anywhere near enough.

What’s more, as these deadlines get closer, there’s likely to be a severe shortage of skilled tradespeople, with some estimates at a quarter of a million needed, by 2030. This means costs will simply rise to meet the demand as the deadline approaches.

A quick back of the envelope calculation is all that’s needed by most landlords to show that some of their properties will be uneconomic to refurbish, with payback periods stretching too far into the future, so selling the property is the only sensible route. 

The Iran war and a hit on mortgage rates

Just as landlords with heavy mortgages thought they were out of the woods, as the bank rate started to come down steadily, the conflict in the Middle East has turned this relief on its head.

Interest rates were falling nicely, cut four times during 2025. This brought the Bank of England base rate down to 3.75 per cent, the lowest rate since before the pandemic. Further cuts were predicted in 2026.

The Iran war started this past couple of weeks has prompted a string of announcements from the likes of HSBC, Nationwide, and Coventry Building Society about fixed-rate mortgage increases. Several hundred residential mortgages have been withdrawn from the market this week. The market reaction now rules out rate cuts and is pointing instead to a likely rate rise.

The average five-year buy-to-let mortgage rate has now edged back up above 5 per cent, with swap rates rising sharply since the oil and gas price surge. According to the National Institute of Economic and Social Research modelling, if energy prices remain elevated for up to a year, the base rate could climb back to 4.5 per cent. 

For some landlords, already squeezed by all the above factors, even modest rate increases can tip over into a loss-making situation. The only hope is that the war will end quickly.

Rents cooling 

According to the Office of National Statistics’ (ONS) figures, average UK monthly private rents increased by 4.0%, to £1,368, in the 12 months to December 2025, an annual growth rate which is down slightly from 4.4% in the 12 months to November 2025.

By comparison to June 2025, when private rents increased by 6.7%, to £1,344, over the previous 12 months, and to May 2025 when they increased by 7.0% over the previous 12 months to May, there is a distinct downward trend.

It means that rental income is not compensating for the extra costs landlords are experiencing and therefore they cannot simply pass these extra costs onto tenants as might otherwise be the case. The slide started in London and has spread to the rest of the country.  

With the advent of The Renters' Rights Act in May, a single annual rent increase will in future be restricted and therefore limit landlords’ ability to react quickly when their costs spike. Rent increases will lag and this could be exacerbated if tenants appeal these increases – no increase can be made until an appeals process is complete.

What does this mean for tenants?

Piling pressure onto landlords as successive governments have done is not without consequences. The consequences of an exodus of landlords – mainly the small-scale individual landlords with one or two properties – making up the bulk of the sector are disastrous for tenants seeking good accommodation at a reasonable cost.  

Larger portfolio landlords and the build-to-rent corporate operators are consolidating and there’s some growth there. But fewer landlords overall means that supply will tighten. On the plus side all this supports rent levels, but a constrained market tends to push up rents for the very tenants the legislation is designed to protect

This paradox goes to the heart of government policy; why introduce measures with the intention of improving security and conditions for tenants while at the same time risking reducing the number of homes available to rent.

Tough times pass; tough landlords don’t. It’s the ones who adapt to the new environment, the ones who can operate at scale and most likely, incorporate, who will adapt best. 

Those who stay will need to manage in a professional manner; they will need to be aware of all the legal requirements and plan to comply.