Landlords Take Flight As 100K BTL Homes Sold

Bristol
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Harsh tax reforms have resulted in the sale of more than 100,000 homes and many landlords now plan to leave the market by selling up entirely.

Buy-to-let landlords intend leaving the market in droves next year as new research indicates that more than 100,000 rental homes have been sold since a punitive tax regime was introduced.

Investors have faced severe restrictions since April 2017, when the Government began to limit the amount of mortgage interest and other costs that could be offset against tax. Some landlords now face a marginal tax rate of more than 100%.

These new rules are to be phased in by 2021, although thousands of landlords have already admitted defeat. Analysis of mortgage transaction data by estate agency Savills shows that 103,900 more BTL homes have been sold than bought since the new tax regime was brought in. And what’s worse, many more look likely to follow.

A market study carried out by landlord insurer Simply Business discovered that 26% of BTL owners planned to sell a minimum of one of their properties in 2020. The reasons for selling were numerous, showing the extent of the changes that have adversely affected the sector.

Unfavourable tax rules

The research found that 15% of landlords were selling up because of unfavourable tax rules, with a further 15% quitting due to other government reforms. These include the proposed abolition of ‘no-fault’ evictions and new laws that require landlords to buy a licence when they let a property to three or more tenants.

One in three investors also cited lower rental yields this year than in 2018, as many have seen their profits squeezed.

Lawrence Bowles of Savills said that some landlords were selling properties in the south of England and reinvesting money in northern towns and cities where returns are generally higher, but many others were leaving the market lock, stock and barrel. However, due to size or cost, few of the properties they are selling will be bought by young first-time buyers.

Instead, the properties are likely to be snapped up by wealthy foreign investors. Bowles added that the type of properties landlords want to sell are not necessarily what first-time buyers are looking for. Consequently, they are more likely to be bought by those who can afford to buy with cash and are not affected by the tax relief changes.

Abolition of ‘Section 21’

Other potential reforms have done little to reassure landlords. The Conservatives, Labour and Liberal Democrats have all promised to end no-fault evictions by scrapping ‘Section 21‘, which allows landlords to evict tenants without giving a reason.

While tenants’ groups say these reforms will give renters greater security, landlords are fearful that they will be unable to evict problem tenants unless they take out expensive and time-consuming court orders.

Even landlords of long standing have decided to sell up because of the changes. Some respondents agreed that rogue landlords had needed to be curbed, but felt that the issue had veered from one extreme to the other; from no regulation to over-regulation.

Other respondents plan to sell one property a year in order to minimise capital gains tax liability, as their properties have risen in value since purchase. However, they believe they may struggle to sell, as few landlords have the desire to buy when returns have fallen in recent years.

Simply Business found that 33% of landlords had seen their rental yields decline during 2019 and many were pessimistic about the year ahead. The company added that more than 80% of investors had decided against purchasing a new buy-to-let property in 2020.

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