Close up and side view of classic Georgian buildings in London, England, UK.
Colors Hunter – Chasseur De Couleurs | Moment | Getty Images
LONDON — London landlords are selling their buy-to-let properties at record interest rates as expected tax hikes by the UK Labor government add further pressure to the once lucrative investment sector.
Almost a third (29%) of homes currently for sale in the capital were previously rented, according to figures published on Thursday by property portal Rightmove.
The rise reflects a wider rise in rental property sales across the UK, where 18% of all listings nationally were previously rented, according to Rightmove.
Rightmove said it was not yet clear that the figures indicated a “mass exodus” of landlords, but rather a gradual decline in the appeal of the buy-to-let sector. The previous five-year average of previous rental listings for sale was 14%, while the proportion of properties on the market for rent in 2010 was 8%, Rightmove said.
He stressed that he expects tax increases in Finance Minister Rachel Reeve’s upcoming Autumn Statement — including a possible rise in Capital Gains Tax (CGT) — to be a “potential driver” of increased sales.
Prime Minister Keir Starmer has already warned that October’s budget would be “painful” after the government said it discovered a 22 billion pound ($29 billion) hole in the public finances when it took office in July.
Reeves declined to be pressed about the content of her spending plan, telling CNBC in July that such matters are “rightfully for the budget.”
Speculation has grown around tax increases, including the equalization of CGT, which will bring it in line with the graduated rates at which income tax is levied. Currently, buy-to-let owners must pay a flat rate — 18% for basic rate taxpayers and 28% for higher rate taxpayers — to sell their property.
Marc von Grundherr, director of London-based estate agency Benham and Reeves, said the potential equalization of CGT was “of course” a concern for many landlords.
“If the Labor government were to go ahead with this, it could significantly increase the tax the average owner pays when it’s time for them to leave the industry,” he said.
“This would be a further blow to those who provide vital housing stock that is badly needed in the rental sector, following a series of legislative changes already introduced in recent years to reduce profitability.”
The UK’s buy-to-let market — once a key wealth-creating sector — has come under pressure in recent years after many incentives were scrapped, including tax breaks for real estate investors;. The recent cost of living crisis and higher interest rates have also reduced affordability for owner occupiers, with the number of new buy-to-let mortgage approvals shrinks in 2023 for the first time since they were introduced nearly three decades ago.
It is estimated that the stock of investment property and second homes is now down 8.7% compared to three years ago, according to Savills.
This comes amid a wider slump in the property market which is now seeing some relief. The easing of borrowing costs after the Bank of England cut interest rates in August sparked a boom in homebuyer activity.
The total number of new properties on the market is currently up 14% compared to 2023, according to Rightmove.
Rightmove itself emerged as a potential takeover target for Rupert Murdoch-owned property firm REA Group, which said on Monday it saw growth opportunities in the UK market. But Rightmove expert Tim Bannister said the recovery in property may not be felt across the board and warned that a further crackdown on buy-to-let investors could exacerbate existing affordability issues in the rental market .
“A healthy private rented sector needs investment from landlords to provide tenants with a good choice of homes,” he said.
“We have seen in recent years how supply and demand imbalances can contribute to rising rents, so there is concern that without incentives for landlords to stay rather than leave the rental sector, it will be tenants who will pay the price. “, he added.
