The landscape for buy-to-let landlords in London is shifting dramatically as tax hikes loom on the horizon. Data from property portal Rightmove revealed that 29% of homes currently for sale in the capital were previously rented out. This spike is part of a larger trend, with 18% of all nationwide listings being former rental properties, according to Rightmove. This shift indicates a gradual decline in the appeal of the buy-to-let sector, rather than a mass exodus by landlords.
Finance Minister Rachel Reeve’s forthcoming Autumn Statement is expected to include tax hikes that could significantly impact the buy-to-let market. Speculation has centered around a potential increase in Capital Gains Tax (CGT), which would align it with the tiered rates of income tax. Currently, landlords pay a flat rate of either 18% or 28% on property sales. Marc von Grundherr of Benham and Reeves noted that this proposed change is a major concern for landlords and could lead to a substantial increase in taxes when exiting the sector.
The buy-to-let market in the UK has faced numerous challenges in recent years, from the removal of tax incentives to the rising cost of living. The repeal of tax relief for property investors and higher interest rates have made it increasingly difficult for landlords to sustain profitability. As a result, new buy-to-let mortgage approvals have decreased for the first time since their introduction almost thirty years ago. This has contributed to an 8.7% decline in investment properties and second homes compared to three years ago, further exacerbating the situation.
Despite the struggles in the buy-to-let sector, the broader property market has seen some relief in recent months. The Bank of England’s rate cut in August has led to lower borrowing costs, driving a surge in homebuyer activity. The total number of new properties on the market has increased by 14% compared to the previous year, indicating a potential rebound in the sector. However, this recovery may not be evenly distributed, and further regulations on buy-to-let investors could worsen affordability issues in the rental market.
Concerns for the Future
As the buy-to-let market continues to face uncertainty, the impact on tenants is a growing concern. A healthy rental sector relies on landlord investment to provide a diverse range of housing options for tenants. Without incentives for landlords to remain in the market, there is a risk of rising rents and decreased affordability for renters. It is essential for policymakers to strike a balance between regulating the market and ensuring adequate housing supply for those in need.
The landscape for buy-to-let landlords in London is evolving rapidly due to anticipated tax hikes and changing market conditions. As landlords sell off properties in response to tax changes, the future of the rental market hangs in the balance. To sustain a healthy rental sector, policymakers must consider the impact of their decisions on both landlords and tenants to avoid exacerbating existing challenges in the market.