London landlords are selling their buy-to-let properties at record rates as anticipated tax hikes from the U.K. Labour government have added further pressure to the once lucrative investment sector. Data published by property portal Rightmove showed that almost one-third of homes currently for sale in the capital were previously rented out. This trend is not isolated to London, as rental property sales across the U.K. have also seen an uptick, with 18% of all nationwide listings being previously tenanted. Rightmove noted that tax hikes expected in Finance Minister Rachel Reeve’s forthcoming Autumn Statement, including a possible increase in Capital Gains Tax, could be a driving factor behind these increased sales.
Prime Minister Keir Starmer has warned that the October budget would be “painful” after the government identified a £22 billion hole in public finances. Speculation has emerged around potential tax hikes, including the equalizing of Capital Gains Tax rates for buy-to-let landlords which could significantly impact the tax paid by landlords when exiting the sector. The U.K. buy-to-let market, once a key area of wealth creation, has faced challenges in recent years due to the repeal of incentives and the cost-of-living crisis. The number of new buy-to-let mortgage approvals has shrunk for the first time since their introduction nearly three decades ago, leading to a decline in investment properties and second homes.
Despite the challenges faced by the buy-to-let market, there has been a wider downturn in the property market that is now showing some relief. Easing borrowing costs following the Bank of England’s August rate cut have led to increased homebuyer activity, with the total number of new properties on the market currently up 14% versus the previous year. Rightmove has emerged as a possible takeover target for Rupert Murdoch-owned real estate company REA Group, signaling potential growth opportunities in the U.K. market. However, property experts have warned that further clampdowns on buy-to-let investors could exacerbate existing affordability issues in the rental market.
Marc von Grundherr, director of London-based real estate agency Benham and Reeves, expressed concern over the potential equalizing of Capital Gains Tax and its impact on landlords. He highlighted that this could lead to a significant increase in tax paid by landlords exiting the sector, adding to the challenges already faced by landlords due to legislative changes and the cost-of-living crisis. The supply and demand imbalance in the rental market, exacerbated by a decline in landlord investment, could result in rising rents unless there is encouragement for landlords to remain in the rental sector. It is crucial for the private rented sector to have continued landlord investment to provide tenants with a good choice of homes and prevent further affordability issues for renters.
In conclusion, the buy-to-let market in the U.K. is facing significant challenges due to anticipated tax hikes, legislative changes, and the cost-of-living crisis. Landlords are selling their properties at record rates, with almost one-third of homes currently for sale in London previously being rented out. The broader property market is showing signs of relief due to easing borrowing costs, but experts warn that further clampdowns on buy-to-let investors could worsen affordability issues for renters. The supply and demand imbalance in the rental market underscores the need for continued landlord investment to provide tenants with a good choice of homes and prevent rising rents.
