17 May 2023

BTL landlords exiting the market due to interest rate rises, causing residential rents to boom

Industry News, Residential, SHW News

The Bank of England (BoE) has been raising interest rates since December 2021, taking them from 0.1% to 4.50% in May 2023. This is to help control inflation, which has surged to 10.1% in April 2023, well above the BoE's target of 2% - and is significantly higher than all other G7 countries. The BoE has indicated that it may raise interest rates further to 4.75% in June, and further again to 5.00% in August to try and push down inflation.

Richard Pillow, Director of SHW, says: “This action is having immediate implications on the housing market, especially for buy-to-let landlords who often rely on mortgages to finance their property investments. Buy-to-let landlords are facing a squeeze on their profits as their mortgage payments increase, whilst their rental income may not keep up with inflation.”


Additionally, landlords are also facing higher taxes on their property gains as the Capital Gains Tax (CGT) annual exemption was reduced from £12,300 to £6,000 in April 2023, and is set to fall further to £3,000 in April 2024. As a result, many buy-to-let landlords are selling their properties to avoid large losses or to lock in their gains before taxes rise further.


Richard adds: “Capital Gain Tax receipts have rocketed from £11.1 billion in 2020/21 to £18.1 billion in 2022/23, as more buy-to-let landlords offload their properties. The Times reports that BTL landlords were behind nearly one in five property sales in London so far this year.


“Young people are being particularly impacted by this, as higher interest rates make it more difficult for young people to save for a deposit and buy their own home, with more of their income being allocated to rent. This means that younger renters must stay in the rental market for longer, increasing the demand and competition for rental properties, all whilst the general supply of rental properties is decreasing due to BTL landlords selling up – which further pushes up rents.


“This reduces the disposable income and living standards of young renters, who are having to cut back on other expenses or move to cheaper areas, as they face higher rents, lower savings, and fewer choices in the rental market. Many young renters are also opting to move in back from with their parents where it is an option.”


As interest rates are presently being built in to rise to 5.00% by August 2023, the situation will continue to evolve at pace, but it seems without a sign of easing up on the immediate horizon.