London landlords are selling their buy-to-let properties at record rates as anticipated tax hikes from the U.K. Labour government add further pressure to the once lucrative investment sector. Data from property portal Rightmove shows that almost one-third of homes currently for sale in London were previously rented out. This spike is reflective of a wider trend across the U.K., where 18% of all nationwide listings were previously tenanted. The proportion of ex-rental properties on the market in 2010 was 8%, but it has since increased, indicating a decline in the appeal of the buy-to-let sector. Rightmove highlighted that upcoming tax hikes, including a possible increase in Capital Gains Tax (CGT), could be a potential driver of the increased sales.
Prime Minister Keir Starmer has already warned that the October budget would be “painful” due to a discovered £22 billion hole in the public finances. Speculation has mounted around tax hikes, including an equalizing of CGT rates for buy-to-let landlords, which would significantly increase the tax paid when exiting the sector. The U.K. buy-to-let market has faced challenges in recent years, including the repeal of tax incentives and the rising cost of living. The recent cost-of-living crisis and higher interest rates have also reduced affordability for landlords. The number of new buy-to-let mortgage approvals shrank in 2023 for the first time since they were introduced nearly three decades ago.
Data from Savills shows that the stock of investment properties and second homes is now down 8.7% versus three years ago. Despite this, the property market is now experiencing some relief with easing borrowing costs following the Bank of England’s August rate cut, which has sparked a boom in homebuyer activity. The total number of new properties on the market is up 14% versus last year, according to Rightmove. However, there is concern that further clampdowns on buy-to-let investors could exacerbate existing affordability issues in the rental market. A healthy private rented sector relies on landlord investment to provide tenants with a good choice of homes.
London-based real estate agency Benham and Reeves highlighted that the potential equalizing of CGT rates is a concern for many landlords. If implemented, it could result in a significant increase in the tax paid by landlords when exiting the sector. This would add to a string of legislative changes in recent years that have already dented profitability for landlords. The buy-to-let market, once a key area of wealth creation, has faced pressure in recent years following legislative changes and financial challenges. Landlords play a crucial role in providing housing stock in the rental sector. Without encouragement for landlords to stay in the rental sector, there is a risk that tenants will face the consequences through rising rents due to a supply and demand imbalance.
Rightmove itself has emerged as a possible takeover target for Rupert Murdoch-owned real estate company REA Group, indicating growth opportunities in the U.K. market. However, there may be varying effects of the real estate market recovery, and further clampdowns on buy-to-let investors could worsen affordability issues in the rental market. It is essential to strike a balance that encourages landlords to stay in the rental sector while ensuring tenants have access to a good choice of homes. The ongoing changes in tax policies and financial pressures on landlords highlight the need for a strategic approach to support the viability of the buy-to-let sector and maintain a healthy private rented sector.
