Are small landlords really set for extinction? What can be done to stop it?

Small landlords built the PRS, but rising costs, tougher rules and the loss of Section 21 are pushing many of the most experienced investors towards the exit.

Reading Property118 this week, it appears that we are witnessing the beginning of the end for the ‘individual’ investor.

To me, the backbone of the sector is not just bending; it is breaking.

Recent survey results published by Property118 highlight a worrying trend of older, experienced landlords who are voting with their feet.

This is not simply a flight of the over-leveraged, the inexperienced or bad landlords, but a mass abandonment by the most stable providers in the market.

No more hassle

In England, the consensus is that the Renters’ Rights Act has put the skids under the sector but there’s more to it than that.

Along with higher mortgage rates, the numbers don’t add up for leveraged landlords.

Throw in the abolition of Section 21 ‘no fault’ evictions and we are looking at a very different business model.

Not every landlord will be hit in the same way, but Section 21 was really a ‘no reason given’ route for possession.

It was a procedural shortcut that allowed landlords to reclaim properties from tenants who were trashing their home or failing to pay rent without having to endure an evidence-heavy battle in a broken court system.

By removing this safety valve, the government has fundamentally shifted the risk profile of renting out a home.

PRS is shrinking

According to Savills, around 700 rented homes a day are being listed for sale.

Compounding this is the looming 2030 deadline for EPC ‘C’ ratings which, obviously, only applies to the PRS.

While owner-occupiers can live in draughty Grade-II listed cottages indefinitely, landlords are being told to invest tens of thousands of pounds in retrofitting.

The carbon footprint of a tenant is clearly more important to deal with climate change than someone who owns their home.

And that’s us spending money on some properties where such upgrades are physically or financially unviable.

For many older landlords, the choice is simple: sell now while the market is buoyant or face a massive capital expenditure they will never recoup.

The government is so busy trying to protect the tenant from the landlord that they’ve forgotten to protect the tenant from a market with no homes left to rent.

What can the government do?

If the government wants to prevent a total collapse in PRS supply, it must move beyond rhetoric. To stem the exodus of these 220,000 homes, three actions are essential:

• Judicial reform: Without Section 21, the Section 8 process must be made fit for purpose. Landlords need a ‘fast track’ court system that guarantees a possession order for mandatory grounds (like rent arrears) within weeks, not months. If the legal risk of a bad tenant is mitigated, more landlords will stay
• Section 24: The current tax regime, which prevents individual landlords from deducting mortgage interest as a business expense, is a punitive anomaly. Reversing or modifying Section 24 would instantly improve the viability of small portfolios and signal that the government values the service landlords provide
• Retrofitting grants: If the government insists on higher EPC standards for the PRS alone, they must provide the carrot to match the stick. A dedicated Landlord Green Grant or 100% first-year capital allowances for energy upgrades would prevent thousands of older properties from being offloaded.

It doesn’t sound like a lot to ask for, does it? But no one in government, and certainly not in tenant activist groups, seems to have cottoned on to the biggest issues.

Avoiding the pain

The Telegraph had a story this week spelling out that older landlords don’t want to be clobbered financially for small mistakes on paperwork or not handing out the government information sheets.

Without prompt court action, rent arrears become a serious commercial risk so we need tougher referencing, even though the government is determined to stall that with its discrimination clauses.

Then we have tenant mobility versus landlord certainty with a renter able to leave with two months’ notice at any point.

Obviously, landlords face a longer, more formal route to regain possession and this imbalance will become a recurring complaint.

I said last week that England’s PRS could go bang overnight when the first £40,000 fine lands. In reality, it may be slower than that.

There may be no single moment when the sector collapses, instead, stock will keep thinning as landlords sell selectively, avoid higher risk lets or simply stop investing.

It’s worth noting too that life isn’t a bed of roses for landlords in Scotland or Wales, and now in Northern Ireland, either.

All landlords have got a real Hobson’s Choice situation looming here and if governments in the UK don’t stop treating the small landlord as a problem to be solved, they will soon find themselves with a housing crisis they cannot fix.

Until next time,

The Landlord Crusader