Buy-to-let landlords have sold more properties than they purchased over the past couple of years, and that trend looks set to continue with many property investors left with little alternative but to exit the market.
Increasingly concerned about mounting costs, a growing number of buy-to-let landlords want to reduce the risk by reducing the size of their property portfolio – or exiting the market altogether.
Mortgage interest relief changes, the scrapping of the ‘wear and tear’ allowance and the introduction of the 3% stamp duty surcharge have hit landlords’ profits over the past few of years, which partly explains why so many people are leaving the the buy-to-let market and thus reducing the supply of much needed private rented stock.
The government’s draconian tax changes have not just pushed a number of BTL landlords out of the PRS, but have also left prospective tenants in some parts of the country with little alternative but to bid against each other, pushing rents up in the process, as a result of falling housing supply.
Gina Peters, head of landlord and tenant at Dutton Gregory solicitors, said: “The recent increase in buy-to-let landlords selling their properties could see an alarming reduction in the number of privately rented homes, with private landlords expecting to bank more than if they were to keep their portfolios. However, with more of the population being unable to afford to buy their own home, the UK’s dependency on the rental market is more so than ever.
“This is a really uncertain time if you are a private landlord. Up to the year 2000, property owners were eligible for mortgage interest relief at source, which provided valuable tax relief for higher- rate taxpayers. More recently, changes have also been made to capital gains tax thresholds, and in April 2023 the capital gains tax-free allowance was reduced from £12,300 to £6,000. In April 2024, this will be decreased to £3,000, meaning landlords will have to pay out more in capital gains tax when selling a property.
“Official figures from HM Revenue and Customs, based on capital gains tax data, saw that between 2021-2022, the sell up of properties by landlords was 8.5% higher than what was expected, with 153,000 properties sold. It was also reported that 95% of letting agents had experienced their landlords selling at least one of their properties.
“Meanwhile, the Renters Reform Bill – which is working its way through Parliament, is expected to create a big change to the way landlords can regain possession of their properties. This comes at a time when the backlog in repossession cases to be heard at court is already at record levels.
“Many of our clients are asking what’s next? The government needs to step up and find a solution so that it remains financially viable for landlords to retain their buy to let portfolio, as it’s critical to a healthy property market.