Cost pressures and rental reforms are likely to discourage new investors and accelerate exits among landlords with lower margins or higher leverage, according to the latest financial assessment of the sector.

However, credit ratings firm Morningstar DBRS expects that for institutional investors with securitised BTL portfolios, the impact will be absorbed.

Its briefing explains that the combined pressure of regulatory changes and elevated financing costs is weighing more heavily on smaller mortgaged landlords, potentially driving them from the market and increasing institutional participation. This is evident in the growing share of new supply coming from large-scale landlords and institutional investors, as smaller players exit the market.

It points to Savills’ estimates that 254,000 previously rented BTL homes were listed for sale across Great Britain in the year to March 2026 - a 9% year-over-year increase.  

Forecast

The analysis comes as Savills’ latest housing forecast shows that average mainstream UK house prices are expected to fall by -2% in 2026. Lower demand is being set against elevated levels of stock – partially from landlords selling up in the face of greater regulation, which it says will place downward pressure on prices, particularly across submarkets in London and the South East.

Morningstar believes that extended vacancy periods and refinancing pressures could impact arrears for securitised BTL portfolios. “Over the longer term, arrears may trend downwards, with the overall size of the UK BTL mortgage market declining because of landlord exits, particularly those unable or unwilling to adapt to the sector’s evolving economics and regulatory environment,” it explains. “This supply reduction is likely to sustain rental growth, while remaining landlords become increasingly selective in their choice of tenants.”

Prices

Although stabilisation in both interest rates and property prices has supported a gradual recovery since Q1 2024, the rebound remains fragile, it says. Geopolitical developments and trade-related uncertainties, along with tax reforms, continue to challenge the sector. “Consequently, gross mortgage advances for BTL fell 40% in 2025 versus 2022 levels. These pressures could intensify further as the Act is implemented.”

After a significant contraction in 2023, new BTL mortgages rebounded in 2024 and stabilised through 2025, although they remain constrained by persistent cost pressures and evolving regulatory and tax changes. “The Act is expected to add to these headwinds, limiting growth through 2026,” the report adds.

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