Goodlords’ annual State of the Lettings Industry report has revealed insights from over 2,750 landlords, letting agents and tenants from across the UK.
This year’s data shows the landlord exodus is not over. In total, a third of all landlords (35%) have either sold up (19%) or actively tried to sell (16%) in the last 12 months.
Nearly half of landlords selling up (44%) had sold just one property, but a significant minority (14%) said they’d taken five or more homes out of the market – representing a major threat to supply.
With the Renters’ Rights Bill weeks away from becoming law, four in five landlords who are actively reducing their portfolios cited the legislation as a key reason for doing so. The abolition of Section 21 – so-called no fault evictions – is the measure causing most concern. 80% of landlords say it will have a negative impact on the PRS.
The number of landlords heading for the exit is putting huge pressure on tenants, who are scrambling to find and affordable properties.
Half of tenants (48%) said they found it difficult to find a property over the last twelve months. Letting agents agree – over two-thirds (67%) reported an increase in tenant demand this year, with a third (30%) of agents saying the number of properties available to rent had declined.
In their attempts to secure a property, two in five renters (40%) say they’ve paid more than the standard month’s rent up front to try to beat the competition. This, however, will be banned under the Renters’ Rights Bill – potentially putting certain tenants at a disadvantage.
With over 40% of renters saying they were unlikely to buy their own homes within the next five years, the supply and demand pressures on the sector look unlikely to abate anytime soon.
With new rules around rental rises set to be introduced with the Renters’ Rights Bill, prices could be unintentionally driven up across the market. The ban on over-bidding for properties risks a rise in “gazundering” – where landlords increase asking rents in order to leave space for downwards negotiation. 1 in 5 landlords (20%) plan to advertise higher prices to hedge for tenant gazundering. A rise in gazundering could skew market metrics, leading to rapid rise in rent escalations as landlords and agents seek to keep rents in line with local averages.
And despite almost half of landlords (40%) saying they hadn’t increased the rent for existing tenants in the past year, new rules meaning rental rises can only happen annually (via a Section 13 notice) could encourage more landlords to increase rents each year as standard, to avoid missing this window.
Going forward, tenants will have the right to appeal any rent increases. While three-quarters (76%) said they would only do so if they believed an increase was unjustified, an eyebrow raising 1 in 5 (22%) of tenants said they would always appeal an increase. This suggests that the First Time Tribunal could see cases spike, causing long delays in judgments and potentially leaving uninsured landlords out of pocket in interim.
Potential rent rises are bad news for tenants already under huge financial pressure. Almost half of tenants (42%) are currently in ‘rent poverty’ – defined as spending 40% or more of their gross income on rent.
Although this represents a slight decrease compared to last year (down from 48% of tenants) for tenants on lower incomes the situation is acute. Among those earning £20,000 a year or less, nearly three-quarters (73%) are in rent poverty. A third of tenants say a 3% rent increase would push them into financial distress.
Affordability pressures are filtering through to arrears. Almost a third (29%) of agents reported an increase in arrears this year. Among landlords, 42% said arrears had increased.
And it’s not just tenants under financial pressure. The report reveals that the abolition of fixed-term tenancies will have a significant impact on revenue. On average, agents say a quarter (27%) of their revenue comes from renewals. And it’s higher in London, with agents in the capital saying that renewals account for37% of their income.
With the Renters’ Rights Bill set to mark the end of fixed-term tenancies, agencies will need to reassess revenue models to fill this major void – meaning a revenue crisis could be on the horizon for a large number of agencies.
As they seek to drive efficiencies, this year’s report reveals that agents are starting to embrace AI – with adoption more widespread at larger agencies.
Nearly half of agencies (47%) report experimenting with AI, with 22% saying they’re using it in their day-to-day operations. However, only 7% say it has transformed their workflows and improved the client experience.
With a range of pressures facing the market, it’s no surprise that only 13% of landlords currently describe themselves as optimistic about the sector.
However, agents are feeling slightly cheerier. Optimism amongst letting agents has edged up for the first time in five years. One in five agents (20%) describe themselves as “somewhat optimistic” about the future of the sector, with a further 7% saying they were very optimistic – representing a 4% increase in positive sentiment compared to last year.
William Reeve, CEO of Goodlord, commented: “This year’s report, now in its eight year and our most in-depth to date, reveals a market under intense and mounting pressure. Landlords are deeply disillusioned, with the Renters’ Rights Bill hastening their decision to exit the market. And agents are facing tough headwinds and escalating pressure on their bottom line, making finding new revenue streams and routes to efficiency has become an absolute imperative.
“One of the most worrying areas is tenants. Already struggling with rental costs and a shortage of properties, we believe that the Renters’ Rights Bill could unwittingly ramp up the pressures they’re facing. From blocking tenants from paying in advance, incentivising landlords to overprice properties, and driving more to sell-up, a bill designed to protect tenants could inadvertently be about to pull the rug out from under them. Renters’ Rights could very quickly become renters wronged.”
You can access Goodlords’ annual State of the Lettings Industry report here.
Agency earnings at risk as Renters’ Rights Bill looms, report warns
Most landlords are selling due to sequencial reductions in profit margins, the most crippling being mortgage repayments more than doubling in the last couple of years. It is not RRB (which has yet to actually happen) despite continual articles like this peddling in fear. I assume it is either to encourage small agencies to sell or to sell whatever product the author has (in this case AI/tech).
The end result is that stock is reducing which is not great for tenants and that is the long story of Govt policy working its magic.
Has anyone realised that the end of fixed terms will result in a huge saving in admin time? This will suit some agencies very well indeed. The average tenancy is 2.4 years and I cannot see why the ability to move whenever will mean that the majority of tenants actually do so. Why would you go through the hassle and cost if the property suits your needs and you have a good agent/landlord?
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You are right about the reason for many ‘smaller’ landlords exiting the sector being mortgage rates, but also S24, which would have had a disastrous impact on me if I hadn’t sold. Mortgage rates on my remaining 2 rentals increased significantly, to the point I was not breaking even. But I had accrued the profits for such a rainy day. But the rain became a storm when one tenant stopped paying rent and caused massive damage, which resulted in me losing the £20k profit pot I was relying on. So I sold that one too, just as soon as I could kick the feckless oik out.
So now I have just one rental, and I have increased my rent from below the market rent to above it, and I had no shortage in applicants in August. My mortgage rate has come down a little, but other costs gave risen, so it remains a balancing act. I am retired and no longer have any desire to be a landlord, and the RRB will put the cap on that.
I’ve been lucky in not being reliant on my rental income over 25 years, and done OK. Many others haven’t, and I don’t see it as a sector where new entrants can reliably invest for their futures.
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RRB is the last nail in the coffin of the anti-landlord rhetoric for many. Yes, Section 24, higher interest rates, etc. have all played their part along the way, but wiht the decrease in revenue meaning many are not even breaking even any more the RRB adds a level of risk (damage, rent arrears, etc, rising costs) that becomes too great to bear so I am afraid it does have a part to play.
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I know of landlords selling up for the simple reason they just do not want pets in their properties. This is no whim, they have suffered pets in the past and the damage has been horrendous. How will we know a pet has been introduced when it becomes a legal right and tenants can refuse a landlord’s right to carry out inspections. I do not allow pets in my flats because my tenants all work full time but this did not stop 2 of them from getting a cat. No judge would ever grant an eviction over a pet. I rent below the national average and only increase rents every 5 or years. Good tenants are worth more than rent increases but the only way to be rid of bad tenant could be annual rent increases at the maximum allowed. I can foresee existing tenants being priced out of the market.
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We let to a friend in dire straits at 50% of the market rent. She had a large, ageing dog, and as she was apparently ‘in property’ herself, we assumed she would take care of any pet ‘problems’ in order to not compromise a future letting. Long story short, she was the tenant from hell. At one point, she actually said I have more rights than you, when asked if she could allow an electrician access. She made holes in the walls to hang numerous pictures, which she filled in very badly, and there were unsightly stains on the carpets. We reached the point of no return and increased the rent to the market rent, which she wouldn’t accept. The next step was a S21, but she moved out, leaving us to resolve the problems. The house was filled with the smell of dog (we adopt rescue Spaniels) and we could not remove the stains after 3 professional cleans.
We have since re-let the house and the new tenant has commented on the stains. But they have a good rent and there are no smells (he also has a small dog, earns £500k, and is letting out his home 20 miles away and needed the house for the start of the new school year).
We would have replaced the 10 year old carpet, but as he had a dog, he’s accepted we won’t.
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