Why aren’t buy-to-let landlords thriving and growing their portfolios when rent demand is through the roof? Why is it that build-to-rent (BTR) investors are so optimistic?
According to a recent report by NRLA chief executive Ben Beadle, new figures show that buy-to-let investment has fallen to its lowest level since before the 2008 financial crisis.
Yet one of Britain’s biggest residential housing providers, Granger PLC, has just announced a bumper set of results and exudes optimism in its latest announcement:
“Grainger has delivered another period of outstanding performance, and we are continuing to deliver growth year-on-year. Earnings are up 23% whilst net rental income grew 15% compared to this period last year, driven by our new openings, growth in underlying rents and our ability to leverage our central costs and operational platform.
Our properties are in high demand and our portfolio remains fully let with occupancy at 96% with a strong customer demographic base and stable and healthy levels of affordability. The expansion of our BTR portfolio is accelerating our earnings growth. Residential, specifically private rented residential, has proven its resilience through the cycle compared to other real estate asset classes with excellent rental growth protecting valuations and we are seeing continued valuation growth.”
Contrast this with Hampton’s latest BTL research which states:
“Buy-to-let has long been a popular route to wealth creation. But in recent years, regulatory and other reforms have sparked debate over its viability.”
The challenges faced by small-scale buy-to-let landlords have been mounting for years, ever since the government and the Bank of England got twitchy following the financial crisis about the amount of debt overhang with buy to let mortgages. The then chancellor George Osborne moved to “cool down” the sector by removing mortgage interest relief, among other restrictions, and for political reasons as well – the media spotlight had begun to focus on rogue landlords and the many buy-to-let millionaires.
Even though the small-scale landlord remains the largest provider of rental housing in Britain, by far, providing homes for millions of renters, investment in buy to let is falling and landlords are quitting the sector. There are currently around 2.8 million landlords in the UK providing homes for more than 4 million households. Approximately two-thirds of these private landlords are over the age of 55.
Figures quoted in the The Times show that buy-to-let investment has fallen to the lowest levels since 2007, and Hamptons findings show that in the first four months of this year landlords bought 10% of all the homes sold in Britain, considerably down on the high of 16% in 2015. Meanwhile, most recent mortgage lending data shows that lending to private landlords represents just 8% of all lending, down from 14% before the covid pandemic.
Taxation, regulations and the Renters’ Rights Bill threatening even stricter regulatory change, combined with higher running costs and potentially expensive energy efficiency upgrades create an increasingly challenging environment for landlords.
On the other hand, though still relatively small, build-to-rent (BTR) provides around 2 to 3% of the UK's PRS housing stock (over 4% in London), representing almost 300,000 homes already built or in the current pipeline – the BTR sector seems eminently more optimistic than BTL, with investment in the sector continuing to grow rapidly.
BTR’s advantages stem from structural, financial, and regulatory roots.
Chief among these are economies of scale, where large institutional investors and developers can build and manage hundreds of units. They spread the costs of maintenance, marketing, letting agents, legal, and compliance over a very larger base, whereas private landlords managing one or two properties face disproportionately higher per-unit costs, and they have limited bargaining power.
BTL landlords have been hammered by tax and regulatory changes by successive governments, mortgage interest is no longer fully deductible (Section 24 changes), the 3% stamp duty surcharge has been increased to 5% on additional properties, capital gains tax (CGT) on disposal is a factor and could increase and stricter EPC requirements are on the way - minimum EPC “C” rating.
However, with BTR developers it’s a different story as they can often use corporate structures allowing them to offset costs and interest, reducing their tax liabilities significantly.
The regulatory headwinds now facing small-scale BTL landlords including the abolition of Section 21 “no-fault” evictions, lifetime tenancies, stricter standards and more obligations worry landlords in case they get stuck with a bad tenant. It all makes BTL riskier that it was, while BTR operators are already structured to absorb compliance through professional property management, and the odd bad tenant in the scheme of things is of little consequence to them.
The institutional investors have access to cheaper capital funding for their BTR developments with low-cost debt (from pension funds, REITs, insurers) with equity finance at scale, while BTL landlords pay retail mortgage rates, now often over 5%, with tougher affordability checks (especially post the 2022 interest rate hikes).
The UK government and local authorities are actively supporting BTR to meet their increased housing targets, they are streamlining the planning process for BTR and giving these investors planning and policy support.
BTL has no such institutional backing or obvious government support and is even seen as politically unpopular. Private landlording in the UK doesn’t have the best of images among the public or MPs. They see rogue landlords treating their tenants badly and tar all the sector with the same brush. They see BTL as inflating house prices, preventing first time buyers getting on the housing ladder, even though most landlords are responsible landlords providing much needed rental housing, and potential first time buyers often just can’t afford to buy.
BTR schemes whether flats or family homes offer newly built properties meeting modern standards while some offer concierge services, co-working spaces, gyms, events, tech-enabled management, and flexible lease terms. These are premium accommodations that are attractive to young professionals and urban renters who have been priced out of ownership but have high stable incomes.
BTL landlords often can’t compete on amenities or service, but they can often compete on price and offer a good product that suits those who can’t afford or don’t require premium accommodation with all the added frills.
The stability of rental demand and steady reliable cash flow into the foreseeable future means that BTR has become attractive to institutional investors, pension funds, REITs, sovereign wealth funds looking for long-term, inflation-linked income.
On the other hand, BTL properties are often an illiquid asset unless sold individually and with vacant possession. The resale value is vulnerable to rising mortgage rates and changing government policies and tax regimes.
So, large-scale BTR wins on economies of scale, efficiency, regulation, tax treatment, tenant demand, and an easy exit for institutional investors. Meanwhile, small BTL landlords are squeezed by interest rates, tax burdens, rising compliance costs, and political hostility. Unless BTL investors can create a niche for themselves, for example HMOs, short-term lets, serviced accommodation, which are more profitable than single lets, small-scale BTL is increasingly a shrinking-margin, higher-risk game.
Yes, there’s been selling but so far not a mass sell-off - according to NRLA research 38% of BTL landlords plan to sell down or sell out while just 7% plan to buy. The net result is more evictions, fewer properties available to rent and higher rents.
Committed private landlords however have adapted to the new hostile environment by setting up limited companies, professionalising their operations and scaling up in size to get some of those economies of scale the BTR sector enjoys.
So, as outlined above, fewer new BTL landlord investors are entering the sector, presumably deterred from investing by the changes that have made the sector less attractive financially, and more complex. What new investments there are, tend to be concentrated in the north where prices are lower and yields higher, while leaving renters in the capital struggling to find homes.
All is not lost for BTL. Chief among the positives for the sector are the population statistics. These bode well for both BTL & BTR:
Over the past two decades, the United Kingdom's population has seen steady growth, primarily driven by net migration. Historical UK population (2005–2025) was approximately 60.4 million and by mid-2025. Estimates (MacroTrends) place it between 68.2 million and 69.6 million. This represents an increase of about 8 to 9 million people in just 20 years.
Population growth over the next 20 years or so (2025–2046), according to the Office for National Statistics (ONS), is to increase by 4.9 million (7.3%) over the next 10 years, that’s between mid-2022 and mid-2032, and reach approximately 72.5 million, then reaching 76.6 million by mid-2046.
The population growth in the UK is expected to be entirely due to net migration, as the number of births is projected to be like the number of deaths during this same period. The UK's population is also ageing which will put increasing strain on public services, healthcare and pensions. In 2022, 19% of the population was aged 65 or over. This proportion is projected to increase to 27% by 2072.
In short, these trends suggest the rental supply crisis will not abate in the foreseeable future unless there’s some dramatic change in government policy. Unfortunately, there’s no sign of that imminently, in fact just the opposite.
With a government that prioritises public services and welfare spending, and with a ballooning national debt, higher taxation looks to be on the cards and the next budget. As such landlords, despite already suffering tax increases, could be in for more.
According to a recent Daily Telegraph article Rachel Reeves is under pressure from Labour politicians to launch a fresh tax raid on landlords. Nick Williams, a former No 10 aide has warned taxes would “have to go up” as the Chancellor seeks to fill a fiscal black hole.
According to The Times, Labour MPs are keen to increase the amount landlords pay on rental income, and tax experts have told The Daily Telegraph that Ms Reeves could force landlords to pay National Insurance on their rental income, introduce a separate tax band for rental income or levy VAT on residential property lettings. These sort of tax increases would allow Labour to avoid breaking its manifesto pledge of not raising taxes on “working people”. Landlords, according to Sir Keir Starmer, don’t make the grade when it comes to the definition of “working people”.
Private landlords are leaving the BTL sector but it’s not a landslide. However, fewer new BTL landlords are entering the sector, both trends leading to fewer rental properties, particularly in the capital, and higher rents.
Meanwhile build to rent is booming, though yet in relatively low numbers. This is on the back of demographic trends that predict continuing population growth in the UK, down to immigration, and therefore continuing healthy demand for rented accommodation.
Despite the negatives, BTL could still have a bright future; policies go round in cycles as do markets, so investing at times of apparent doom and gloom can pay dividends. As one investor said recently, you should sell when you think you’re a wiz kit successful investor and buy when you want to be sick in your tea!
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