The UK Rental Market: A Shifting Landscape
The UK rental market is experiencing a significant transformation, as evidenced by recent Rightmove data revealing that 18% of homes currently for sale were previously rented properties. This figure marks the highest on record, a stark contrast to the 8% observed in 2010. This surge in ex-rental properties hitting the sales market may be indicative of broader changes in the buy-to-let sector and the wider economic landscape.
Why might Landlords be selling up?
Anticipated Tax Changes
One of the primary drivers behind this trend might be the looming spectre of potential tax increases in the upcoming Budget. Landlords, who have often borne the brunt of tax hikes in recent years, are particularly wary of changes to Capital Gains Tax (CGT). The recent reduction in CGT from 28% to 24%, announced in the Spring 2024 Budget, has provided a window of opportunity for landlords considering an exit strategy.
Owners of Furnished Holiday Lets (FHLs) could also be contributing to this trend. With the abolition of FHL rules from 2025, many are rushing to sell while they can still potentially benefit from a 10% CGT rate. This urgency is adding to the influx of former rental properties on the market.
Regulatory Pressures
The rental sector is bracing for increased regulations, particularly concerning energy efficiency and health & safety standards. The government’s review of these requirements is likely to impose additional costs on landlords, potentially pushing more to consider exiting the market.
Regional Variations
The trend is not uniform across the UK. London leads the pack, with nearly a third (29%) of homes for sale previously being rental properties. Scotland and the North East follow closely at 19% each. These regional disparities highlight the varying pressures and market conditions across different parts of the country.
How will this impact the sector?
The exodus of landlords from the rental market may raise concerns about the future supply of rental properties. With the social rented sector at capacity and homeownership out of reach for many, a shrinking private rented sector could exacerbate housing challenges.
A reduction in rental stock could lead to increased competition among tenants, potentially driving up rents. The properties being sold may perhaps be more likely to be sold by smaller private landlords and be acquired by larger corporate landlords or institutional investors, potentially changing the landscape of the rental market.
The Government may have been hoping that the influx of ex-rental properties could provide more options for buyers, and this shift might lead to a rebalancing of the housing market, although this will have potential long-term impacts on both the rental and sales sectors.
What should you do?
While the current trend suggests a significant shift, it’s important to note that this isn’t necessarily indicative of a mass exodus of landlords. The five-year average for homes moving from the rental to sales market is 14%, suggesting a gradual rather than sudden change. The upcoming Budget on October 30th may bring potential changes to CGT and inheritance tax rates which are likely to have a significant impact on landlords’ decisions.
Zoe Roberts, Tax Partner at BHP said “The government faces a delicate balancing act between addressing housing supply issues and maintaining a healthy private rented sector. Encouraging landlord investment while ensuring tenant protection and housing affordability will be key challenges that they need to address in next month’s Budget. While the current trend of ex-rental properties hitting the sales market is noteworthy, its long-term impact on the rental sector remains to be seen. The coming months, particularly following the Budget announcements, will be crucial in determining the trajectory of the UK’s rental market landscape.”
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