Estimated 126,500 rental properties have been sold since 2022, says CBRE
CBRE forecasts that the base rate will rise to 5.75% by the end of the year

The UK’s private rented residential sector has lost approximately 400,000 rental homes since 2016, with many landlords leaving the market due to growing cost pressures and mortgage rate environment.   

Research conducted by global real estate advisor, CBRE, has found that since the start of 2022, when the Bank of England began increasing the base rate (from 0.25% to now 5%) prompting higher mortgage costs, it is estimated that 126,500 rental properties have been sold.

Additionally, the research found approximately 273,500 rental properties were sold between 2016 and 2021, aligning with the additional rate of stamp duty for second properties, introduced in 2016, and phasing out of mortgage interest relief. In total, this equates to a loss of 400,000 rental homes.

CBRE forecasts the base rate to rise to 5.75% by the end of 2023.

Scott Cabot, head of Residential Research at CBRE, said if sales continue at a similar trajectory, the numbers will represent a loss of almost 10% of the UK’s private rented households by the end of 2023.

“Changes to policy in the past decade have increased the amount of tax payable on both purchasing a buy-to-let property and its rental income, and ultimately have reduced the viability of buy-to-let investment. More recently this has been compounded by high inflation which has driven a rapid rise in interest rates and increased other costs associated with owning and managing a property.”

“Higher mortgage costs could mean that buy-to-let borrowers may start to struggle to meet banks’ lending criteria. Interest coverage ratios stipulate that the rent from the property needs to cover 125% to 145% of the interest on the loan. As interest rates rise and mortgage rates increase, the rent needed to satisfy these conditions moves in tandem.” added Cabot.

CBRE cited industry data that reported UK tenants are now spending an average of 32% of their salary on rent. This rises to 37% in London.

Beyond the financial viability of buy-to-let properties, new EPC requirements and the concerns over the impact of the Renters Reform Bill have all been significant contributing factors to landlords seeking to exit the market.

CBRE’s research examined build-to-rent as a solution to relieve pressure on the rental market. The report found there has been £26.5bn of Build-to-Rent investment since 2014 and investors are continuing to target the sector.

However, despite there being a pipeline of 250,000 Build-to-Rent homes across the UK, only 90,000 of these homes are built equating to a current net fall of over 300,000. CBRE’s analysis found there will still be a potential net reduction of 150,000 rental homes even when the current Build-to-Rent pipeline completes.

Sharief Ibrahim, head of Residential Agency at CBRE said even with a burgeoning build-to-rent sector, the rental homes supply shortage can’t be ignored.

“While build-to-rent is our market’s silver lining, private landlords still play a vital role in the provision of rental stock and the current situation appears drastic.  Many investors were relieved when the Labour Party reversed its plan to introduce rent controls should it win the next election, but we also see the need for bold solutions and policies to ensure the supply of rental homes in the UK doesn’t completely dry up.”

“These solutions could include the reintroduction of mortgage interest relief, and/or either a temporary or permanent exemption of additional stamp duty for buy-to-let homes.”