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London in rent crisis as thousands of landlords tried to sell last year

According to London’s CityAM reporter Laira McGuire, “Almost half of UK landlords have tried to sell their property in the last 12 months, as owners look to rid themselves of mortgage pressures in a worrying blow for renters.”

The claim is based on a study carried out by lettings platform Goodlord which interviewed around 2,000 landlords and estate agents. It found that around 77.5 per cent of those questioned in London blamed rising mortgage rates for those landlords putting properties on the market.

Section 21 in use

According to a recent study carried out by the housing charity Shelter, landlords are using the Section 21 eviction process while they can ahead of the implementation of the Rental (Reform) Bill, while the process is still available to them. It means that, according to Shelter, “notices pursuant to Section 21 of the Housing Act 1988 (as amended), are being served on tenants in the private rented sector every 8 minutes, which is the equivalent of 172 Section 21 notices per day.”

The Renters (Reform) Bill 2022-23, introduced in May of 2019, is the Government’s attempt at reforming the private rented sector in England, among other things, to remove the fear of evictions from private tenants. It intends to fulfil the Conservative Party’s manifesto commitment of abolishing the Section 21 eviction process during the Government’s tenure.

But progress on this has been slow and only 18 months or so before the next general election the Bill finds itself only on its second reading in the House of Commons. Given the complexity of the Bill it is looking doubtful it will make the promised Royal Assent by the end of 2023.

Mortgage pressures

The moves by hoards of private landlords to sell-up over the last 12 months – many looking to escape the mortgage pressures they are under while others fear they won’t be able to remove bad tenants when the new laws come in – is making life extremely difficult for tenants looking for good quality rental accommodation at the right prices.

Figures vary between 100,000 and over 150,000 landlord properties exiting the market over the last year but these are reliable figures based on HMRC returns and The National Federation of Residential Landlords (NFRL). Some estate agents have seen instances of as many as 17 prospective tenants queuing outside rental proprieties in London for a viewing.

Landlords are even asking tenants for CVs to assess their character, which is as a reflection of the demand from tenants and the fact that in England and elsewhere in the UK the private rented sector has such scarcity of rentals in what is now decidedly a totally landlords’ rental market.

Goodlord reports that 98 per cent of estate agents in London said that “at least one of their landlords was selling a property. As a whole across the UK, 47 per cent of the landlords have tried to shift their property in the last 12 months.”

The PRS and its landlords have gone through something of a perfect storm over the last 12 months with the turbocharging of interest rates following last year’s mini budget and the bank of England’s 14 consecutive interest rate hikes, sending borrowing costs higher than they have been for a generation. Many landlords have never experienced rates so high in their whole careers.

Along with many other new regulations being introduced into the PRS, the threatened tightening of the EPC targets to EPC rating of “C” by 2025 for new properties and 2028 for existing rentals has panicked some owners of older rental properties. They will likely need large amounts of money spending on them, and now with the advent of the Renters (Reform) Bill, for many its been the “final straw”.

House prices fall

One effect of this attempted sell-off is the added impetus to the fall in house prices generally, which so far this year has been in the region of 4.6 per cent. This is expected continue as estate agent responders to the survey stated that they expect more landlords to reduce their property portfolios over the next 12 months.

On the other hand, research by international agents, Hamptons says that rents are likely to rise by almost five times more than house prices between now and 2026. Hamptons is forecasting that rents will rise by 25 per cent between January 2023 and 2026, which will easily outpace the 5.5 per cent average growth prediction in house price rises over this same period.

A rental supply problem

Hamptons thinks that the long-term rental supply problem due to the factors stated above will mean that much of the costs will be passed on to tenants by way of increased rented biting deeply into many tenants’ disposable income. It looks like higher interest rates are here to stay for the long term, which will continue to weigh heavily on house sales and prices.

The trend spells out a difficult period for the UK’s 4.6 million private tenants who are seeing a shrinking pool of rentals available to the market. In their desperation to secure rentals, some potential have fallen foul of scams, such as fake rentals and stolen deposits, which have started to proliferate in a market with such growing scarcity.

According to Goodlord, 73 per cent of renters reported to them that finding a property to rent was “one of the most stressful things they have ever done.” The dwindling supply has also allowed landlords, when letting a new rental, to increase rents, very often achieving rents higher that the advertised price, due to the competition between competing prospective renters.

One agent, Mark Gray, director at Elevation Lettings reported that:

“When tenant contracts come to an end, they now look around the marketplace and realise that there’s little point moving to another property, as it’s likely to cost them another hundred pounds or more per month,”

Richard Davies, chief operating officer of Chestertons, has said:

“London has always experienced high demand from tenants which has been met as much as possible by private as well as corporate landlords,”

“With major changes such as the Renters (Reform) Bill being introduced as well as rising interest rates generating less profit for overleveraged landlords in particular, the market has seen some deciding to sell up.

At the same time, however, he says, “we are liaising with homeowners; not landlords; who delay their sale due to the weaker sales market and put their property on the rental market instead.”

In the debate about whether landlords are leaving the private rented sector in the numbers speculated in the media, and whether tenant demand really is a high as is claimed, the findings from the RentTech firm Goodlord and Vouch goes a long way to strengthing the claims that this is definitive proof of what is happening.

Their survey questioned more than 2,000 landlords, tenants and agents, and found that nearly all reported having at least one landlord selling at least one of their rental properties.

Goodlord’s chief executive, William Reeve, had said:

“We can see which forces are giving landlords pause for thought, where anxieties for tenants are coalescing, and how agents are preparing for change.

“The private rental sector is a vital part of our economy; we hope this report provides valuable insight to all of its stakeholders and encourages decision makers to take the steps which will boost confidence in the market, particularly for landlords.”

Tom Goodman, the managing director at Vouch, had said:

“Although it’s understandable to see rising concern from agents and landlords about the changes to come, it’s more important than ever to see the positive in this shifting landscape.

“Upcoming legislation is a real opportunity for letting agents to demonstrate their value to landlords and tenants, meaning clued-up letting agents will continue to thrive.”

As with all investing in financial markets, while some are selling in a depressed market for sales, others will be buying cheaply with a view to rent properties out; new opportunities begin to appear. For those landlords willing to navigate the new rules, and perhaps operate through a limited company to minimise the Section 24 tax rules, with tenant demand as never before, it could soon be the time to invest?


Buy to let