Last week research claimed that that nearly half (44%) of landlords are thinking of selling their investment properties owing to the difficult environment of rising mortgage rates and hostile policies towards them.
However news stories like this are nothing new, and having worked in this sector for a number of years I’ve grown rather cynical about them.
There’s long been talk of landlords leaving the market in droves ever since mortgage income tax relief was eliminated in 2020-21 and replaced by a 20% tax credit, while the 3% stamp duty surcharge under the David Cameron-George Osborne government in 2016 was also meant to see an exodus of investors.
I think what often happens is investors react with shock when conditions worsen for them and consider exiting, but usually they end up realigning their expectations and sticking around.
Last week research from Fleet Mortgages found rental yields stood at 6.5% in the first quarter of 2023 – this still isn’t a bad return in my book.
The one area where this ‘landlord exodus’ may not be exaggerated is in Scotland, if current conditions continue.
The government’s focus on controlling rents in the country may be well intentioned, but if it goes on for too long the maths just simply isn’t going to add up north of the border – if landlords can’t pay their mortgage they’ll have no choice to sell.
In England landlords can charge higher rents to compensate for higher energy prices, so the majority should be able to weather difficult times.
What’s more, if some landlords did decide to leave then demand for rental properties would outstrip supply even more, pushing rents up and therefore making things more profitable for those that stay.
This brings us to another point.
Whichever government ends up leading us after the next general election, they need to keep an eye on the statistics regarding the proportion of private rented stock and owner-occupiers.
If the proportion of landlords drops significantly then either the government needs to make conditions better for landlords by reinstating mortgage income tax relief, or they need to step up the supply of social rented stock, to ensure tenants have somewhere to rent.
If rental properties are scarce and therefore expensive that’ll create the conditions for social disharmony in the UK like we’ve never seen before.
However I’m still cynical about this landlord exodus, and I expect most landlords will stick around, even if mortgage rates inch up further.
