As 37% of landlords plan to reduce the number of properties in their portfolio in the next 12 months, Pegasus Insight warns there could be a shortage of rental properties.

Pegasus data shows that this is almost double the proportion that were planning to sell in Q1 2022, which stood at 20%.

Over the same timeframe, those planning to expand their lettings portfolio has fallen from 18% to 6%.

Pegasus also found that 39% of landlords say they will exit the market within the next five years, while 22% say they have no intention of selling.

Recent sales activity is now running at almost four times the level of recent purchases, according to the research company, with 22% selling a property in the last year, and only 6% buying one.

More highly leveraged landlords with four or more buy-to-let (BTL) mortgages were the most active, with 11% buying a property in the last 12 months and around three times this number selling (31%).

Only 28% of properties sold by landlords definitely stayed in the private rental sector. Meanwhile, 58% of investors buying a new property bought from another landlord, 67% of those selling sold to owner occupiers and 31% to first-time buyers.

It also found that 28% know they sold to another landlord, which Pegasus says indicates a potentially large reduction in stock available in the PRS.

Despite these results, Pegasus highlights that the underlying fundamentals of the PRS remain solid, with good tenant demand in most areas, high average rental yields and a steady profitability outlook.

Just over seven in 10 landlords report strong tenant demand in the area(s) where they let.

Of this, 37% say current demand is ‘very strong’, 36% ‘quite strong’, 18% ‘average’ and just 3% ‘weak’.

The average achieved rental yield remains high and largely unchanged at 6.3%, which represents a decline of 0.2% below the 10-year high recorded in Q3 2024.

Pegasus Insight founder and director Mark Long states: “These results suggest a large cohort of disillusioned landlords, worried about the future of the sector and further demands the government might place on them.”

“Our research confirms that many landlords are deeply concerned about the impact of the Renters’ Rights Bill, energy efficiency requirements and a potential hike in Capital Gains Tax on buy-to-let property. The fact that so many feel impelled to sell up despite the underlying health of this market is particularly galling.”

“A proportion of the intended sales will be down to selective pruning by larger landlords, and some of the divested property will be hoovered up by other landlords. But there’s no doubt that the volume of stock in the PRS will reduce in the next 12 months. And as supply falls while demand remains strong, rents will inevitably rise yet further, hurting tenants.”

“The government must wake up to the dangers of a shrinking PRS and change its approach to the landlords who provide homes for 19% of the UK’s population.”

“Now is the time for policymakers to consult with the industry on ways to support landlords and encourage further investment in the PRS, before it is too late.”