Happy New Year…well, that’s what we should be saying. Except, for residential landlords in the UK, it might not feel like that. 2023 is here and new rules and regulations are coming in for landlords, most of which, they’re not best pleased about.

We can understand why…

In a nutshell, higher mortgage costs will make it harder for landlords to stay profitable, whilst regulatory and tax changes, including a capital gains tax raid, will also increase the burden. It is potentially true that economic pressures will increase the demand for private rental properties, but will it be worth it?

If last year was a mixed bag for landlords, this year looks like it could be even more weighted towards the challenging than the optimistic. Anywhere you look you’ll see that rents are going up, but this isn’t being pocketed by landlords, it’s simply being wiped out by rapidly rising mortgage rates.

What else do landlords have to look forward to in 2023?

Squeezed margins – Some calculations estimate that many landlords will be operating at a net loss in 2023, due to the tightness of their margins. Some will stick it out, but who could blame them for selling up?

Rising rents – With all that added pressure of increasing mortgage rates, landlords will have no option than to continue increasing the rent. The average rental price is higher than ever and demand is higher than ever too, but believe it or not, it isn’t ‘greedy landlords’ driving these increases.

Falling house prices – It will now be less attractive to buy to let in the first place, and even more difficult to get out with a good return on investment, for now anyway. This is why many landlords may choose to ‘see it out’.

More tax to pay when selling – A planned capital gains tax raid will cost a typical property investor £2,6000 when selling a home that has increased in value. No matter what they decide to do, it seems landlords will be coughing up more of their investment than ever.

Renters’ Reform Bill – Not only will the pressure be on from lenders and banks, but renters will have new rights to challenge landlords on rent increases and substandard homes. Landlords could find themselves squeezed, not only by their margins, but by the people they deal with as well.

So, what are they going to do about it?

Limited Company – One option could be to try and weather the storm, but many landlords are choosing to switch to the limited company model. This is in an attempt to cut tax liabilities and mitigate the cost of increasing mortgage rates.

Mass Exodus – Whether or not all of these changes mean that we’ll witness a mass exodus of landlords from the market remains to be seen. Many will at least be put off, but those with the deepest pockets may see an opportunity.

Whichever way you look at it, if you thought the rental market was lively in 2022, 2023 is about to blow that out of the water.