How many new rental properties will the UK need annually?

To say that the last few years have been tough for buy-to-let landlords is an understatement. Changes to the tax and allowances system have led to shrinking margins, while stricter rules on managing tenancies have created red tape and additional expenses. ‘Levelling-up’ plans will also force some landlords to upgrade their properties significantly. However, despite the changes, the buy-to-let market is still very much dependent on supply and demand. That’s why it’s worth noting a new study that predicts how many new rental properties the UK will need annually.

How many new rental properties will the UK need?

A study was conducted by Capital Economics and was commissioned by the Residential Landlords Association.

It found 230,000 new rental properties will be needed annually to meet rising demand.

Currently this looks unachievable. The study looked at the average net addition of private rented homes to the housing stock. Between 2016 (when mortgage interest relief began to be throttled) and 2020, an average of 5,000 such properties were added to the market. This compares to 205,000 over the previous 10 years.

Surely demand is a good thing?

Demand is certainly a good thing if you are a buy-to-let landlord. But many landlords are finding the hassle and lower margins aren’t worth it. Research from Zoopla found a while ago that a growing number of landlords are selling up. Go and this is getting worse as interest rates on mortgages are now so high. Many landlords are coming off historically low fixed mortgage rates to find that their new mortgage interest payments hardly cover the rents. Government figures show that the supply of private rented properties has dropped by 260,000 properties in half a decade.

In other words, demand is still high and growing. Whereas supply looks to be dwindling.

Is it worth expanding your portfolio?

If demand is strong, is is worth scaling up your portfolio? Obviously, this depends on your circumstances – particularly the money and time you have to invest.

That said, rents are still rising. However, with the cost-of-living increases, you also need to factor in that some tenants will increasingly struggle to cover their rent.

There are likely to be other pressures on the market. We know that the war in Ukraine is having many knock-on effects on the UK, including higher energy and food prices.

Can I get advice on new rental properties?

If you are a landlord, it’s a good idea to seek advice on ways of making buy-to-let more profitable. As the Accountants for Landlords, THP can review your portfolio, suggest ways of making it more tax efficient and give you the forecasts you need in order to decide whether to acquire new rental properties.