Private landlords are reducing their stock in response to the hostile policies enacted by the past few Conservative governments, despite a significant rise in buy-to-let rental incomes.
This is according to the latest research by Benham and Reeves, which compared the size of investors’ portfolios between the first quarter of 2022 and the same quarter this year.
The agency says landlords in England and Wales have seen their rental portfolio income increase by 8.7%, taking the average landlord’s annual portfolio income from £67,304 to £73,186 in the past year, and yet buy-to-let portfolio sizes have fallen by 5.6% year-on-year, dropping from 9.1 to 8.6 – though the situation is far worse in some regions.
In Wales, buy-to-let landlords seem to be leaving in droves, as portfolio sizes have fallen by 42.9%, from an average of 12.6 in 2022 to 7.2 in 2023.
In England the worst affected region is the East Midlands, where landlords have typically reduced their portfolios by 33.9%, from 11.8 to 7.8.
Similarly there were major reductions in the North West (-17%), where average portfolio sizes dropped from 10.6 to 8.8.
It is likely regions with lower house prices are welcoming new investors with small portfolios, which is also pulling down the average portfolio size.
Tax and regulatory changes have adversely affected buy-to-let investors over the past few years, leaving many landlords struggling to make a profit.
And the climate for investment looks to be worsening in the years ahead, as from April next year landlords who sell properties will only be given a personal capital gains tax allowance of £3,000, down from £6,000.
Section 21 evictions are set to be eliminated, which could mean landlords will have a harder time moving on bad tenants.
Investors with inefficient properties will also be tasked with bringing their homes up to an Energy Performance Certificate (EPC) level of C by 2028 to be allowed to rent them out, a process that could be very costly for those who hold historic housing stock.
It is worth noting that this trend of reduced portfolios is not the case in every region, as in the East of England typical portfolio sizes have actually increased by 43.8% year-on-year, from 6.4 in Q1 2022 to 9.2 in Q1 2023.
There are also smaller increases in Yorkshire and the Humber (11.1%), South East (10.1%), and West Midlands (8.2%).
The remaining six regions have all seen portfolio sizes fall, with the North East (-1.0%), London (-1.3) and the South East (-3.8%) seeing only minor reductions.
The director of Benham and Reeves, Marc von Grundherr, commented: “It’s getting harder to be profitable as a landlord, and that impact is starting to show.
“Losing income tax relief had a big effect, while many investors are understandably worried about the upcoming changes to Capital Gains Tax, minimum EPC rules, and the elimination of Section 21 evictions.
“Declining portfolio sizes should act as a warning to the government. The tax landscape is unfairly balanced against landlords and unless the authorities want rental stock to continue falling in the years ahead, they may need to reverse some of these hostile policies which are driving professional landlords away.
“However, there are alternative challenges associated with offloading buy-to-let portfolio properties at present. While many of our landlords are disgruntled due to rising mortgage costs, they understand the difficulties of the resale market in the current climate. As a result, they are choosing to keep hold of their current investments for the mid-term until market values strengthen.”
