Like the rest of the housing market, the rental sector has been under increasing pressure as landlords review their investments in light of higher rates, reduced tax breaks and more legislation.

Yet demand from renters continues to outstrip supply as the same financial pressures push the prospect of homeownership further down the road for many first time buyers (FTBs).

While fears of a mass exodus of buy-to-let landlords haven’t been realised, we have seen a slight shift in ownership as smaller or accidental landlords make way to professional portfolio landlords. Figures suggest 50% of privately rented homes are now owned by 20% of landlords.

Portfolio landlords are more likely to be able to diversify their assets and mitigate the impact of short-term losses in favour of longer term gains.

Where landlords are able to weather the storm, there is still money to be made. In its latest quarterly report, UK Finance reported a gross buy-to-let yield of 6.74% in the final quarter of 2023, up from 5.85% during the same period in 2022.

Recent Zoopla data says there are currently 15 people chasing every rental property, fuelled by mortgage affordability challenges, along with record high immigration from people looking to work and study.

And there’s another shift that might be happening too.

More people are now renting for longer. This will of course be due in large part to stuck would-be homeowners, but the narrowing gap between the cost of renting and the cost of owning could also be increasing the appeal of the former. In many areas of the UK it’s now cheaper to rent than buy, with the pendulum swinging in favour of renting for the first time in a decade.

It means that if the rental proposition is a decent one, renting long-term could become increasingly attractive.

Growing rental market
A report by Savills estate agency predicts there will be an additional 800,000 to one million private rented sector (PRS) households by 2031, with demand from the over-35s increasing eightfold in this period. Generation Rent also predicts growth in the 25-34-year-old age group, rising by 370,000 between 2021 and 2031.

While home ownership has long been firmly entrenched in UK culture as a life goal, this is not the case in other countries. For example, more than half of households in Germany rent privately, compared to around 19% in the UK.

The difference in Germany is rents are more affordable, tenants can’t be evicted for no reason and many belong to tenant organisations, giving them more influence over their living situation.

When conditions are good, renting can offer a much more flexible way of life.

One way the increasing appetite for renting as a lifestyle choice is being met here is through build-to-rent. Corporate landlords are creating purpose-built communities of homes designed for rent, offering long-term stability, on-site amenities and high-quality management.

This growing sector stood at just over 100,000 completed homes in April this year, with a further 160,000 under construction or in the planning stages.

The experience of renters in the UK could be further improved by legislative changes. It’s certainly under the spotlight by the new Labour government, which says Britain faces a housing crisis that means people will rent for much longer than in the past.

Labour recognises the important role of the PRS in meeting housing need and has announced its intention to improve standards, while abolishing ‘no-fault’ evictions and empowering tenants to challenge rent increases that are deemed unreasonable.

So what does all this mean for the buy-to-let landlord?

We could see an increase in demand for rental properties, both through necessity and as a longer-term lifestyle preference, particularly if changing regulations further improve the sector to offer more choice and more security for tenants.

Landlords who are able to offer high-quality homes with decent facilities and long-term stability will be well-placed to attract the growing numbers of forever renters.

Rosemount advisers have access to a variety of buy-to-let and specialist buy-to-let lenders to ensure they can help landlords get the best solutions for their current circumstances and future plans.

Ahmed Bawa is CEO of Rosemount Financial Solutions (IFA) Ltd