Interest Rates Increase and Section 21 changes Blamed for Exodus of Rental Properties

Due to low returns from banks and building societies, many people have resorted to investing in residential property to increase their income. This has been aided by low mortgage interest rates, steady demand from tenants, and consistent yields. As a result, buy-to-let has become a popular investment option in recent years.

Despite the difficulties faced by the buy-to-let market in recent years, including changes in tax and regulations, it has still been a more successful investment option than most major asset classes. This is due to the growing demand for rental properties in the UK, with one-sixth of the population now residing in homes rented from private landlords.

So why are BTL landlords leaving the private rented sector?

As interest rates increase and new regulations continue to be introduced, there is a decrease in interest from potential investors in the buy-to-let market. Additionally, many current landlords: are choosing to sell their properties.

Alongside rising interest rates, the government has also proposed a plan to remove the privilege of landlords to evict tenants without providing a valid reason and with short notice. Up to now, landlords could use Section 21 of the 1988 Housing Act to evict tenants, giving them a two-month notice after their tenancy has expired.

The proposed government plans will result in the creation of indefinite tenancies, where landlords must provide a valid reason for eviction, such as unpaid rent or disruptive behaviour from the tenant. Additionally, the landlord will need to provide evidence of the tenant’s shortcomings to justify the eviction.

According to a survey conducted by Mortgages for Business, 33% of landlords find the government’s proposal to abolish Section 21 to be particularly problematic.

Property finance broker Finbri suggests that once the UK base rate reaches the projected 4.5%, almost half (44%) of landlords will consider selling their investment properties.

Inflation, as measured by CPI, remains elevated at 8.9% in March, indicating that the base rate will probably continue to increase until it approaches the target of 2%. It is predicted that there is a 97% probability that the base interest rate will reach 4.5% on May 11th and could potentially increase further to 5% or even 5.25%.

More than half (52%) of landlords plan to increase rent and evictions due to the housing market being labelled as “precarious” revealed Finbri.

Approximately one-third (31%) of tenants are worried about the residential stability of their rented property. As more landlords consider selling their properties due to potential rate increases, the 15% of renters who are extremely concerned about losing their homes may have valid reasons to worry.

It is understandable that tenants are feeling the pressure of rising costs. According to the study, 27% of renters experienced anxiety due to renting and 73% of UK residential tenants are strongly concerned (36%) or concerned (37%) about rent increases.

Finbri added, “These are uncertain times for the UK rental market, and landlords and tenants must work together to navigate the current climate.”