Savills Warns Landlords Face Tough Decisions Ahead: Sell or Stay?

Property consultancy Savills is urging landlords to prepare for a critical decision: whether to sell or stay in the market. The consultancy highlights upcoming changes to Minimum Energy Efficiency Standards (MEES) as a key factor that could push landlords to reconsider their positions.

Energy Efficiency and Its Impact on Landlords

A significant upcoming regulation is the requirement for all privately rented homes to have an EPC rating of at least a C by 2030. Currently, only two-fifths of privately rented homes meet this standard.

For many landlords, the cost of making these energy efficiency upgrades could be prohibitive. Savills points out that in some cases, the cost of upgrading properties may exceed a full year’s rental income, making it financially unfeasible for landlords, especially those considering an exit strategy.

While some landlords—particularly those with long-term plans—might be willing to invest in the upgrades, the costs are expected to be a tough pill to swallow for others. This could lead to more landlords selling their properties rather than incurring the significant expense of meeting these new standards.

The Sell or Stay Dilemma

Savills predicts that the impending changes to MEES will force landlords to make difficult choices. Those not willing or able to make the necessary upgrades will likely consider selling, while those with long-term intentions may opt to stay and invest in the required improvements.

Rising Rents and Affordability Concerns

In addition to energy efficiency concerns, Savills notes that rents are expected to continue rising through 2025 due to high demand and low supply of rental properties. Despite this, there is a looming risk of an affordability crisis, especially in markets like London, where rents are outpacing income growth.

The lack of available rental homes, as confirmed by recent RICS property reports, continues to drive up rents. The latest data shows 16% fewer rental listings per letting branch in September 2024 compared to the 2018-2019 period. This supply shortage, combined with rising demand, is expected to keep rents climbing above income growth in the near future.

However, Savills also cautions that an affordability inflection point is nearing, particularly in high-demand areas like London. As rents rise, there could be a tipping point where tenants begin to feel the strain, reducing demand and possibly impacting rent growth.

The Outlook for Landlords

In conclusion, landlords will soon face a choice: either invest heavily in energy efficiency upgrades to meet future regulations, or sell up while the market remains favorable. With rents continuing to rise but affordability becoming an increasing concern, Savills warns that the market is on the brink of a key inflection point. As regulatory changes, rising costs, and shifting market dynamics converge, landlords will need to carefully weigh their options in the coming years.