Paragon Bank have recently released new report, The factors driving the buy-to-let market in northern England, which showed that in 2014, 46% of buy-to-let mortgaged house purchases were in London and South East. Last year, that fell to 32%.

The report underscores the significant impact government policies have had on the UK’s buy-to-let (BTL) market, especially regarding regional trends. The introduction of a 3% Stamp Duty surcharge for BTL purchases in 2016 led to a marked shift in BTL investments away from southern England toward the north. Since 2014, BTL mortgaged purchases in London and the South East fell from 46% to 32%, while the North East, North West, and Yorkshire & Humber increased their share from 22% to 35%. The surcharge, which makes BTL investments considerably pricier in London and the South East, has been a major deterrent; a landlord purchasing an average property in Greater London now faces a Stamp Duty bill of £46,633, compared to £5,595 in the North East.

This trend has left London, a city with high demand for rentals from a transient workforce, international students, and professionals drawn by its opportunities, with a declining pool of private landlords. The resulting shortage has driven rental competition to new levels, with rental inflation in London recently outpacing the rest of the UK. As the report argues, build-to-rent developments are helpful but cannot fully meet demand, underscoring the need for a vibrant private landlord sector.

The government’s fiscal constraints make it unlikely that policies like the Stamp Duty surcharge will be reversed. However, policymakers should be cautious of imposing additional burdens on landlords, as upcoming changes—including new energy efficiency standards and the Renters’ Rights Bill—could prompt more landlords to exit the market. This is especially true for small-scale landlords who may have limited financial flexibility.

The report suggests that a balanced approach is necessary to keep landlords in the market, ensuring sufficient rental stock in high-demand areas like London. Without such measures, the UK risks exacerbating rental inflation and talent drain, with potential economic consequences for London and the broader national economy.