The increase in landlords leaving the sector since the Government imposed tax hikes are thought to have contributed to the fastest rent rises in 18 months.
More than 120,000 buy-to-let properties are thought to have been sold by landlords since the Government imposed higher taxes on the sector.
Analysis of UK Finance data by Savills found that 120,000 buy-to-let mortgages have been redeemed in the past two years.
The group blamed the situation on the raft of tax changes and new regulations introduced in the past three years which has made the sector significantly less attractive for individual investors.
The research comes as figures from the Office for National Statistics showed rents climbed at their fastest rate for 18 months in May.
The average cost of letting a home increased by 1.3% year-on-year, the biggest annual jump since November 2017.
Property commentators have warned that a mismatch between supply and demand is being created as landlords reduce their portfolios or exit the sector altogether, putting upward pressure on rents.
Investors are also thought to be hiking their rates in response to the higher costs they now face.
Why is this happening?
The Government has introduced a number of tax and regulatory changes to the buy-to-let sector which makes it significantly less profitable.
Among the changes are a 3% stamp duty surcharge on the purchase of additional properties, introduced in April 2016, a tapering of mortgage interest tax relief and an end to the ‘wear and tear’ allowance.
Other changes include a ban on charging fees to tenants, a limit on the amount tenants can be charged to repair minor damage to properties, and a requirement for more landlords to upgrade their properties to make them energy efficient.
Who does it affect?
The situation is bad news for both landlords and tenants.
As a result of the subdued state of the housing market, buy-to-let investors are no longer making significant capital gains on their portfolios, meaning they have less incentive to hold on to rental properties on which they are only breaking even or incurring a slight loss.
As a result, many are selling up. This means there are fewer homes available to rent, which is, in turn, pushing up the cost of being a tenant.
However, first-time buyers, who no longer have to compete against landlords for properties at the bottom of the housing ladder, could benefit.
What’s the background?
With private landlords exiting the sector, Savills is predicting ‘build to rent’ investors will step in and fill the void.
The properties are high quality and professionally managed homes that have been built specifically for renters. They have corporate landlords and longer tenancies, as well as a typically offering a range of extra facilities.
While there are currently only 30,000 build to rent homes that have been completed, with another 110,000 in the pipeline, Savills estimates there could be 1.7 million homes when the sector reaches maturity, accounting for more than a third of the private rented market.
Top 3 takeaways
- An estimated 120,000 buy-to-let mortgages have been redeemed in the past two years as landlords sell their properties
- It's thought to be due to the raft of tax changes and new regulations introduced in the past three years which has made buy-to-let significantly less attractive for individual investors
- Rents in the UK increased by 1.3% year-on-year in May, the biggest annual jump since November 2017