Okay, increasing the supply of housing will lower prices regardless of whether they are rented out or bought.

> Someone is either willing to pay £1k a month for renting a place or not, they care not for the cost of the house they are renting.

Sure, but landlords do care and won't buy property to make it available for renting if they don't expect to be able to cover the cost. This decreases the supply of rental housing, which means fewer options and higher prices for tenants. If they already own the property and can't manage to get tenants paying rent which represents a competitive return on their capital (i.e. the current market value of the property) then they'll sell to someone looking to either own the property outright or demolish it and redevelop some other form of property. Either way it removes the housing from the rental market.

> … now worth about £320k, it's being rented out for £1k a month because people will pay £1k a month …

So the owner is only getting a 3.75% return on their £320k investment. That's not completely terrible, but it still essentially has negative value compared to the opportunity cost of selling the property and investing the proceeds. This is not a sustainable situation.

> … it has nothing to do with how much it was bought for, only what people will pay.

That much is true. The original purchase price doesn't matter in hindsight. (Obviously it does matter when deciding whether the property is worth purchasing to begin with.) Aside from calculating capital gains/loss for taxes, what counts after the purchase is only what the property would sell for now, not the amount that was originally paid.