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As the private rented sector is facing a number of changes, rental expectations, landlord confidence and the impact on supply levels moving forward are more paramount than ever
Jessica Tomlinson, Associate Director, Savills Residential Research
Expectations on rental values shifted over the course of 2024 as market conditions changed and the rate of growth continued to slow. However, the misalignment between landlords and tenants on this issue was more consistent.
Over much of the past year, Savills agents reported that tenants’ expectations were overwhelmingly weighted towards rental falls, while the majority reported that landlords’ expectations were more aligned towards rental increases. However, in spite of continued misalignment, the gap in expectations did narrow over the final quarter of 2024.
This may be, in part, a result of the seasonal slowdown in demand, with landlords adjusting accordingly to minimise voids. But, wider market conditions and the overall normalisation of the market are also likely feeding into this trend. Just as it was over 2024, closer alignment of expectation over the coming year will be vital to secure the best deal for both parties.
With many challenges facing the rental market, our latest survey suggested that landlords were broadly less confident than they were a year ago. That confidence was more significantly shaken as a result of the Renters’ Rights Bill (RRB), with 82% of landlords reporting a reduction in confidence. October’s Autumn Budget also had an impact, with the immediate introduction of an additional stamp duty land tax (SDLT) surcharge on the purchase of second homes. For many landlords in the private rented sector, upcoming regulatory and fiscal changes will inspire a period of reflection and planning for the year ahead.
Our latest landlord survey also assessed some of the biggest concerns for our clients. The ability to make a profit was amongst the highest ranked, and this is likely to be felt most keenly by mortgaged landlords who are carrying debt in a higher interest rate environment, or those whose assets require maintenance or refurbishment, adding extra costs over a certain period. Unsurprisingly, the upcoming RRB was also ranked highly, and its proposed changes to the rental landscape will undoubtedly bring significant shifts within the sector.
As announced in the Autumn Budget, longer-term changes to inheritance tax were also noted in the survey as a concern. This is likely to particularly impact those landlords holding property as a longer-term investment. Meanwhile, changes to Energy Performance Certificate (EPC) requirements and increased additional SDLT for second home purchases were also ranked as a concern, although to a lesser extent. For many landlords already holding a portfolio, additional stamp duty is less of a disrupter, unless active expansion is part of their strategy. As such, the impact is far more relevant for new investors.
Given that the RRB has been the most significant change to the rental sector for many years, we also asked about specific elements of the proposed legalisation. The abolition of Section 21, which covers ‘no fault’ evictions, was ranked highly as a concern, although many are now clearer on how this will impact the market. Increased notice periods on recovery of possession and rent review procedures were also ranked highly. Here, further details around the legislation are needed to fully assess the impact. More information regarding the RRB and its specific elements is available on the Savills RRB hub page.
Looking forward, we expect increased regulation to limit supply over the coming year. However, the impact will depend on the timing of those changes and how they are implemented. While our survey suggested the appetite for future investment remained muted, plans to dispose of property were more varied and are likely to depend on individual landlords’ circumstances. Therefore, we do not expect a mass exodus from the sector despite ongoing uncertainty. And, for landlords taking a longer-term view, our latest five-year forecasts remain robust, with positive rental growth expected across the prime markets over the period to 2029. Read more here.
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