Policy stability needed to boost investment in PRS
The Private Rented Sector (PRS) needs an amnesty from further government-mandated change in order to prevent landlords quitting the sector, reducing much-needed supply and further increasing record rents.
This was one of the key messages that emerged from the first Landlord Trends workshop hosted by Pegasus Insight along with contributors from Hometrack/Zoopla and the National Residential Landlords Association and attended by representatives from more than 20 organisations active in the UK PRS.
Research showcased during the workshop revealed a PRS already changing due to the pressures of a punitive tax regime and increasingly onerous legislation. In 2010, landlords with just one property made up 78% of the PRS. By 2024, that figure had dropped to 45%. Now 50% of PRS property is owned by just 20% of landlords.
The Renters’ Rights Bill is likely to accelerate that trend, and is causing concern among landlords of all sizes – 81% believe the Bill will have a negative impact on the PRS, with the removal of no-fault evictions the top concern. That is only topped by worries about potential changes to Capital Gains Tax (CGT), which concerns 85% of landlords.
The prospect of the Renters’ Rights Bill is already forcing changes in behaviour: 81% of landlords say they will be more selective about who they let to once the Bill is introduced; 62% will put rents up and 23% will look to cut costs by spending less on maintenance.
Most significantly, only 5% of landlords intend to increase the size of their portfolios this year. This figure has been on a downwards trajectory since Q1 of 2022, when 18% planned to expand – 5% is a record low. What’s more, those planning purchases intend to buy an average of 1.9 properties, while those looking to sell plan to offload 2.9 properties.
This lack of appetite for further investment in the PRS is of real concern, given that around 150,000 new households per year are expected to form in the PRS between now and 2036. Currently only 45,000 dwellings are being added to the sector annually.
Pegasus Insight director Bethan Cooke said: “We were delighted to welcome such a large group of buy-to-let specialists to our first workshop, to analyse our research and discuss the future of the PRS. The findings of this research can help lenders plan ahead as they look to cater for the changing needs of buy-to-let investors in a pressured and professionalising market.
“But mortgage lenders can only do so much. These findings present a stark warning to government. It must find ways to nurture the PRS and encourage more investment in the sector if we are to avoid severely deepening the UK’s housing crisis. As a start point, the government should promise policy stability in order to boost landlord confidence. It seems too late to turn back the clock on the Renters’ Rights Bill, but the government should commit to no more legislative changes and no further tax increases for landlords.
“Research we carried out before the last Budget revealed that 39% of landlords would stop investing and 19% exit the market if CGT on the sale of second properties were increased. Rachel Reeves made the right decision in not hiking CGT in October 2024. She must not be tempted to squeeze landlords further in future.”