Declining Numbers of Smaller Landlords: A Shift in the Buy-to-Let Market
The landscape of the UK buy-to-let market is undergoing a significant transformation, with a notable decline in the number of smaller landlords. Recent analysis indicates that expenditure on buy-to-let properties financed through mortgages has plummeted over the last five years. In 2024, the amount spent by buy-to-let landlords with mortgages reached £14.6 billion, a sharp decrease from £17.7 billion recorded five years prior. This reflects an approximate 18 percent drop, underscoring the diminishing presence of ‘amateur’ landlords, who typically own one or two rental properties.
In contrast, the overall UK housing market, measured by total expenditure on homes, has experienced growth during the same timeframe, increasing by around 12 percent. Data from real estate firm Savills, based on a regulated mortgage survey and HMRC statistics, reveals that the most substantial growth in spending has come from cash buyers. This group spent a remarkable £146.5 billion in 2024, a rise from £118.9 billion five years earlier. Additionally, first-time buyers utilizing mortgages have also significantly increased their housing spending, with their total transactions climbing from £75.3 billion to £88.7 billion between 2019 and 2024.
Reasons Behind the Decline of ‘Amateur’ Landlords
Several factors contribute to the observed decline in the number of mortgaged landlords in recent years. According to Lucian Cook, director of residential research at Savills, a combination of changes has shifted the market dynamics, favoring larger, wealthier landlords over smaller, individually-owned properties.
Higher Mortgage Rates
One of the primary reasons for this trend is the increasing burden of higher interest rates on buy-to-let landlords. Back in 2019, interest rates were a mere 0.75 percent, but by 2024, they peaked at 5.25 percent. This dramatic increase has significantly escalated mortgage costs for landlords who rely on loans to finance their properties. Unless they can offset these costs through markedly higher rental income, many find that being a landlord has become far less profitable.
Justin Moy, a mortgage broker at EHF Mortgages, noted that the sharp rise in mortgage rates during 2022 and 2023 has exerted additional pressure on landlords. This has prompted many smaller, accidental landlords to exit the market, creating opportunities for larger portfolio owners who can absorb these increased costs, either through cash purchases or financing options based on their existing properties.
Property expert Jonathan Rolande added that with current interest rates aligning closely with the average yields from buy-to-let properties, it is increasingly likely that landlords will find their rental income consumed entirely by interest payments, leaving little to cover voids, repairs, maintenance, insurance, and agent fees.
Changes in Mortgage Interest Rules
Further complicating the situation are the changes to mortgage interest rules introduced by former Chancellor George Osborne in 2015. These regulations restricted certain landlords from deducting mortgage interest and other related costs from their taxable income. This policy was gradually phased in and became fully effective by the 2020/21 tax year. According to Moy, the impact of these changes has made property investment less appealing, particularly for those landlords who had borrowed heavily and were relying on consistent income.
Simultaneously, the number of first-time buyers entering the property market has surged, driven by attractive stamp duty incentives during the COVID-19 pandemic, improved affordability calculations, and situations where mortgage payments have become more affordable than rental costs in many regions of the UK.
Increased Regulations and Compliance Costs
Experts also indicate that the introduction of new regulations has made the prospect of becoming a buy-to-let landlord less appealing, especially for smaller investors. For instance, landlords are now mandated to enhance the energy efficiency of their rental properties. Since 2020, all rental properties must attain a minimum energy performance certificate (EPC) rating of ‘E’ to be legally rented, with plans to raise this standard to a ‘C’ rating by 2030 under Labour’s proposals.
As Jonathan Rolande pointed out, the increasing legislative burden has pushed out the ‘mom and pop’ investors—those who typically purchase one or two properties to supplement their pensions—replacing them with larger, corporate landlords operating as limited companies. Additionally, the anticipated changes in tenancy regulations, such as those proposed in the Renters Rights Bill, are set to eliminate the Assured Shorthold Tenancy (AST) agreement. This legislation, currently progressing through parliament, would convert all fixed-term ASTs into periodic tenancies without an end date, complicating the eviction process for landlords dealing with problematic tenants, as they no longer require a reason for eviction under section 21 notices.
