The buy-to-let market in London is currently facing a significant challenge as landlords are selling their properties at record rates. Data published by property portal Rightmove revealed that almost one-third of homes currently for sale in the capital were previously rented out. This trend is not limited to London alone, as 18% of all nationwide listings in the UK were previously tenanted. It appears that the once lucrative investment sector is losing its appeal, with a gradual decline observed over the years.
The looming tax hikes anticipated from the U.K. Labour government are further exacerbating the situation for buy-to-let landlords. The upcoming tax changes, including a potential increase in Capital Gains Tax (CGT), are expected to be a significant driver behind the increased sales. Speculation around equalizing CGT rates with income tax levels has caused concern among landlords. If implemented, this could lead to a substantial increase in the tax burden for landlords exiting the sector.
The buy-to-let market, once a source of wealth creation, has been under pressure in recent years due to various factors. The repeal of incentives such as tax relief for property investors, along with the cost-of-living crisis and higher interest rates, has made it less attractive for landlords. This has resulted in a decline in new buy-to-let mortgage approvals for the first time since their introduction nearly three decades ago. The stock of investment properties and second homes has also decreased by 8.7% compared to three years ago.
The increased sales of buy-to-let properties and the potential departure of landlords from the rental sector could have adverse effects on the rental market. A healthy private rented sector relies on landlord investment to provide tenants with a good choice of homes. Without encouragement for landlords to stay in the sector, there is a risk of exacerbating existing affordability issues in the rental market. Rising rents and supply-demand imbalances may become more pronounced if landlords continue to exit the market.
Despite the challenges faced by buy-to-let landlords, the wider property market is showing signs of recovery. Easing borrowing costs following the Bank of England’s rate cut have led to a boom in homebuyer activity. The total number of new properties on the market has increased by 14% compared to the previous year. However, it is important to note that the recovery may not be uniform, and there are concerns that further crackdowns on buy-to-let investors could impact affordability in the rental market.
The impact of tax hikes on London landlords selling buy-to-let properties reflects the changing landscape of the investment sector. Landlords are facing increasing pressure due to anticipated tax changes, which have contributed to a mass exodus from the buy-to-let market. As the sector continues to evolve, it is crucial for policymakers to strike a balance between protecting tenants and ensuring the sustainability of the rental market.