UK rental market: are landlords or tenants better off right now?

At first glance, the UK rental market seems to favour landlords strongly. Demand is outstripping supply, and competition is leading some tenants to offer well over market rate to secure their homes.

Yet, with rising interest rates translating to higher mortgage payments, many landlords are looking to sell up and avoid the growing risk of tenant arrears caused by the cost-of-living crisis.

Right now, which group is better off? It’s trickier than it may seem.

The decreasing number of rental properties in the UK is putting pressure on tenants across the country.

In cities such as London, already notorious for a savagely competitive rental market, the number of available properties is shrinking.

In 2024, Trust for London reported as many as 45,000 properties in the private rental sector were sold between 2021 and 2023 and not replaced with new stock. Overall, it claimed since the pandemic, there has been a 41% reduction in the number of homes available to rent in London.

Tenants are also paying more in rent, with an average increase of 3.9% in the 12 months to October 2024. Although this rate of growth has slowed compared to previous years, average rents still remain £270 a month higher than they were three years ago, according to Zoopla.

With no alternative to unaffordable properties, many renters are falling into arrears and at the end of 2024, a survey of 2,000 adults by Big Issue magazine revealed two-thirds of those that live in private rented accommodation are worried about how they will pay their rent.

The pressure of rent is particularly apparent in the capital. According to the Office for National Statistics (ONS), since 2015, rent has largely accounted for between 40% and 57% of earnings for those living in London compared to between 20% and 35% in other parts of the UK.

While landlords are in an inherently more privileged position, the picture isn’t necessarily rosy for them.

Rising interest rates have pushed up the cost of mortgages, both on rental properties and their own homes, leaving them with higher bills that many cannot afford to absorb.  

If tenants fall into arrears due to higher rent, most landlords will struggle to pay multiple mortgages from their own pockets.

These problems have been compounded by changes to tax relief available to landlords. Following a change of rules that was phased in between 2017 and 2020, landlords can no longer deduct mortgage expenses from their rental income to reduce their income tax bill.

Now landlords can only claim a 20% tax credit, which represents a substantial tax hike for those that pay higher or additional rate tax. A reduction to the capital gains tax allowance, also means landlords will face a bigger tax bill when they sell their property too.

As such, growing numbers are considering selling their properties and investing the funds elsewhere to minimise risk.  

Why rental properties are important

Landlords have become the target of renters’ vitriol of late, but responsible private landlords are an essential component of our economy.

Even though owning a property outright is the ultimate goal for 80% of people, renting is often the only option for many people.

Private landlords are essential to ensure the supply of rental homes can keep up with rising demand, particularly as the number of social rent homes has shrunk by more than 250,000 in England alone since 2014.

The challenge for landlords 

Property has long been viewed as a savvy long-term investment prospect, drawing many people to the buy-to-let market. 

Learn more: The best areas for buy-to-let in the UK

Lots of landlords see their property as a way to save for retirement, perceiving property to be lower risk than pensions. However, the image of an ultra-wealthy property tycoon doesn’t represent the average landlord.

While some landlords may be privileged, many come from more humble backgrounds. They may be renting out their home while providing live-in care to a family member or choose to rent out a relative’s home following their death.

Many landlords also purchased when prices were far lower and may be unable to make the same investments today. 

Landlords aren’t necessarily wealthy enough to brush off rent arrears or absorb interest rate hikes.

The government’s England Private Landlord Survey 2024 found that 45% of landlords own one rental property, with 38% owning between two and four. Just 17% of landlords own more than five properties.  

However, many people invest in property using a buy-to-let mortgage with the sole intention of renting it out. Their tenants’ rent generally only covers the cost of the mortgage.

Recent interest rate hikes have added hundreds of pounds to their monthly repayments, leaving landlords no choice but to pass on the increase or sell.  

Another risk for landlords is some tenants will neglect their properties and fail to pay rent by choice rather than because of genuine hardship. This can leave landlords with a huge bill for rent arrears and repairs.

While landlords can evict tenants for non-payment of rent, the process can still take months. 

Are UK landlords selling their properties?

Recent research from the Deposit Protection Service has found as many as 47% of landlords are contemplating selling their properties, with almost 90% of those blaming tax and legislative changes for their decisions.

In September 2024, Rightmove also reported the number of rental properties up for sale had reached record levels - with 18% of homes for sale ex-rental, compared to 8% in 2010.

However, there are still some landlords looking to capitalise on high levels of demand and expand or start their property portfolios.

In June 2024, Landbay reported that 44% of landlords were still considering further investment in property, which was being fuelled primarily by increasing tenant demand.

What’s squeezing the UK rental market?

While some landlords will put a brake on rent increases to keep good tenants, many are still facing rent increases.

In most cases, the rise will simply cover the landlord’s increased mortgage repayments. Yet some unscrupulous landlords are taking advantage of incredibly high demand.  

One young renter in London was hit by a proposed 27% rise, amounting to an extra £4,000 in rent over the course of six months.

Even though landlords are supposed to only raise rents fairly and generally in line with inflation, high demand means some wealthy renters are volunteering to pay over the asking price to secure the best rentals.

The verdict 

Ultimately, tenants seem to be worse off right now. Even if landlords end up with tenants in arrears and ultimately have to sell their property due to rising mortgage payments, it’s extremely unlikely they’ll lose their home.

Legal hassle and losing an investment may be frustrating and financially devastating, but that doesn’t come close to the situation for some renters.  

For tenants, the stakes are so much higher. Many people are stuck in unaffordable or substandard housing, that is, in the worst cases, damaging their health.

Lots are being forced out of their childhood neighbourhoods and away from their jobs due to high rents. A small portion are even facing homelessness and debt collectors as their bills spiral out of control.  

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It can be hard to determine if entering the buy-to-let market is the right decision for your unique circumstances.

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