New research has revealed the full extent of the growth in the country’s rental sector, which estimates that around 8.7m homes are now rented privately.

The study by Octane Capital puts the UK in fourth position in the world in terms of the size of its rental market. UK buy-to-let only falls behind the US, Germany and Japan in terms of the number of rented homes it contains. This is based on Octane’s estimations that there are currently more than 29.5m homes in the UK. Its research looked at number of dwellings, proportion attributed as private rentals and how this then equates to the total number of rental homes.

Learning from US, Germany and Japan
The countries with larger rental markets than the UK tend to have populations that are less concerned with becoming homeowners and being ‘a tenant for life’ is commonplace.

The US has around 139.7m dwellings, says Octane, and 47m of these are in the private rented sector, (34% compared to 30% in the UK). Germany has around 20m privately rented properties, while Japan has an estimated 8.7m.

As Jonathan Samuels, chief executive at Octane Capital, points out, the UK buy-to-let sector could see a growing number of life-long renters as attitudes and lifestyles change. “The buy-to-let sector is a serious business and privately rented properties not only account for a third of all homes across the nation, but they also provide a home for many, many more tenants, who have been priced out of homeownership due to high house prices.

“The sheer scale of our private rental market is clear when viewed in contrast to other nations around the world, with the UK sitting comfortably within the top five. While we will never rival the might of the United States due to the mismatch in geographical size, population and property market size, we could see the UK start to catch the other frontrunners as long term renting becomes more prevalent as a lifestyle choice. 

“This is already a commonplace occurrence in nations such as Germany where nearly half of all homes are privately rented in order to satisfy this demand. Should we see a similar trend emerge in the UK, there’s no doubt that the buy-to-let sector will continue to swell in size.” 

Octane Capital also released research recently that aimed to put a price on the size of the UK rental market, which it estimates is now worth around £1.7trn – an increase of £239bn over the past five years.

Due to the fact that this is based on property prices, it is not surprising that London’s rental property market is worth the most, at around £500bn. The capital is a hugely popular renting hotspot, and accounts for around 19% of all privately rented properties in the country, says Octane.

Samuels believes that the PRS has faced some difficulties in recent years, with the government trying to “dampen investment” by reducing tax relief, increasing stamp duty and changing tenant fee rules. Covid, he says, has also affected some landlords negatively by creating longer void periods.

But he adds: “Despite all of this, the sector has stood tall and continues to provide the vital rental market backbone that so many are reliant on. At the same time, the nation’s landlords have benefited from a considerable level of capital appreciation on their buy-to-let investments and the value of the sector as a whole has increased substantially.

“Let’s just hope that whisperings of a higher rate of capital gains tax remain just that, as any further increase could spur a reduction in available stock, causing the total value of the market to decline in the process.”

No CGT increases…for now
Last year, the government shelved its plans to reform capital gains tax (CGT). In December last year, the Treasury passed over previous suggestions by the Office of Tax Simplification (OTS) to bring capital gains tax rates level with income tax, as well as reduce the allowance.

While this meant that many of those facing CGT in the near future could breathe a sigh of relief, including property investors, the threat of a future rise remains very much present.

At the moment, the first £12,300 of capital gains each year is exempt from tax. Above this amount, basic rate tax payers pay 10% tax, and higher and additional rate taxpayers pay 20%. For residential property, basic rate taxpayers pay 18%, while higher rate taxpayers pay 28%.

The OTS has published two CGT reports; the first contains views on the future of CGT and its simplification, and the second (released in May 2021) discusses the technical detail and practicalities of CGT. The government accepted 5 of the OTS’s 15 suggestions for CGT reform, including improving HMRC guidance, expanding rollover relief for reinvestments that enhance land that is already owned, and extending the no gain no loss window on separation and divorce. The remaining suggestions have either been rejected or ‘require further consideration’.