It’s not a good time to be a landlord, especially if you’re looking to expand your portfolio. New figures show that buy-to-let purchases are at an all-time low, with landlords snapping up just 10% of homes sold in the first half of this year. That’s the lowest share since 2010 and a far cry from the 16% seen in 2015, before those pesky tax and regulatory changes came along.

Why are landlords running scared?

The combination of high mortgage rates, political uncertainty and the constant threat of new rental regulations is giving landlords a serious case of cold feet. The share of investor purchases has been steadily declining throughout the year, hitting a low of 9.7% in June.

If this trend continues, we’re looking at just 113,630 new buy-to-let purchases in 2024 – that’s 40% fewer than in 2015, according to research from Hamptons.

Where are investors flocking?

Landlord purchases have fallen in every region except the North East, which is the highest-yielding region in the country. Investors are still buzzing around there, with the share of landlord purchases rising slightly from 24% in 2015 to 25% in 2024.

But London, the lowest-yielding region, has seen the biggest drop in new landlord purchases, more than halving from 17% in 2015 to just 8% this year. Lower rental returns in the capital have made it tougher for landlords to cover their higher costs.

Scotland is also struggling with a low level of investor purchases. Just 5% of homes sold in Scotland so far this year have been bought by buy-to-let investors, down from 10% in 2015 and 7% in 2019. That’s likely due to tighter rental regulations introduced during Covid and a hefty 6% stamp duty surcharge on second home purchases slapped on at the end of 2022.

Is this a good time to invest?

Despite the lack of new investment, yields are actually at record highs across the country. Strong rental growth combined with stagnant property prices mean that investors are now getting an average gross yield of 7.3%, a whole percentage point more than in 2015.

That means a typical investor could earn an extra £1,906 a year in rent on a £200,000 purchase compared to 2015. However, higher mortgage rates and the inability to fully offset those payments (unless owning in a limited company) have reduced after-tax profits for many landlords.

Landlords are selling up, not just holding back

Despite the cost pressures and uncertainty, there’s no sign that more landlords are selling up. In fact, the share of homes sold by landlords has been falling for the past three years. Private landlords accounted for 13% of all sellers in Great Britain so far this year, down from 14% in 2023 and 16% in 2022.

However, landlords are still selling more properties than they’re buying, which is reducing the number of homes available to rent. This trend has been happening since 2016, when the 3% stamp duty surcharge on second home purchases was introduced and landlords lost the ability to fully offset their mortgage payments against their tax bills.

This year, we expect another 146,060 homes to be sold by private landlords across Great Britain. That’s more than the expected 113,630 new buy-to-let purchases, and it means that private landlords will have sold 328,750 more rental homes than they’ve bought since 2016.

Renters are paying the price

The low supply of rental homes is putting upward pressure on rents. The average tenant paid £1,347 per month to rent a new home in Great Britain last month, 5.8% or £74 more than if they moved last year. That’s almost three times faster than inflation.

Tenants moving into a new home in Scotland faced the biggest increases. Rents on newly let properties there rose 11.1% year-on-year, marking the 39th consecutive month of rental growth exceeding 5%.

But London is slowing the pace of rental growth across Great Britain. Average rents on newly let properties in London increased by just 2.7% year-on-year, the weakest annual growth rate since October 2021. This was pulled down by Inner London, where rents fell for the third consecutive month. Meanwhile, rents in the North of England are still rising at a double-digit pace.

What does this mean for the future?

The lack of homes available to rent has been caused by fewer investors entering the market, not a mass landlord sell-off. Tax and regulatory changes have been the main culprits, but these disincentives to invest have been amplified by higher interest rates and the threat of more rental reform.

If investor purchases and sales continued at 2015 levels, there would likely be 450,000 more private rental homes in Great Britain by the end of this year. That’s roughly equivalent to the total number of homes in Birmingham.

The challenge for the new government is to increase security and quality for tenants in the rental sector without pushing more landlords out. While some homes that would have been bought by investors have gone to first-time buyers, high mortgage rates and rising rents are likely to keep many would-be homeowners stuck in the rental sector for longer.