The Rising Tide of Buy-to-Let Property Sales in the UK

In recent years, the UK property market has witnessed a significant shift, particularly in the buy-to-let sector. Driven by increasing financial pressures and regulatory changes, landlords are selling off their properties at an accelerated rate. This trend, which has seen a 34% increase in sales of buy-to-let properties and second homes over the past six years, underscores the growing challenges faced by private landlords in the UK.

The Surge in Sales

According to data analyzed by Savills, sales of buy-to-let properties and second homes have risen dramatically. On average, there were 190,000 sales per year in the three years leading up to April 2024, compared to 129,000 per year in the previous three-year period. This rise is particularly striking when compared to the 2013-14 period, where such sales accounted for only one in 15 of all property disposals; they now account for one in six .

The financial strain on landlords can be attributed to several factors. These include higher stamp duty rates on additional properties, the phasing out of higher-rate tax relief on mortgage interest, and the impending abolition of "no-fault" evictions. These changes have made it increasingly difficult for landlords to turn a profit, prompting many to exit the market .

The Impact of Regulatory Changes

The increased regulatory burden has been a significant factor driving landlords to sell. The introduction of higher stamp duty rates in 2016 marked the beginning of a more challenging era for buy-to-let investors. Additionally, the gradual reduction of mortgage interest tax relief, which was fully phased out by 2020, has further squeezed profit margins.

The prospect of further reforms, particularly to capital gains tax (CGT), is also causing concern among landlords. While Labour has not explicitly detailed any CGT reforms in their manifesto, the potential alignment of CGT rates with income tax rates is a looming threat. Such a change could see higher-rate taxpayers facing a CGT rate increase from 28% to 40%, a significant jump that could add thousands to their tax bills .

The London and South-East Focus

The trend of landlords selling properties is most pronounced in London and the South-East, where property prices and rental yields are highest. Over the first quarter of 2024, two-fifths of all buy-to-let sales were in London. This region, a hub for rental properties, is particularly sensitive to changes in mortgage costs and tax policies. In London, higher-rate taxpayers can now only borrow up to 50% of a property’s value due to rising mortgage costs, making it less attractive for buy-to-let investors .

Future Outlook

With the UK government’s budget approaching on October 30, many landlords are rushing to sell before any potential CGT changes take effect. Savills’ research suggests that investment and second home vendors have paid an average of £12,300 in CGT per sale over the past three years, with 39% of sellers subject to the lower 18% CGT rate .

The ongoing uncertainty in the tax landscape, coupled with existing financial pressures, suggests that the trend of increasing sales in the buy-to-let sector is likely to continue. For landlords considering selling, acting sooner rather than later may be prudent, especially if significant CGT reforms are on the horizon.

Conclusion

The UK’s buy-to-let market is at a crossroads. Faced with rising costs, increasing regulation, and the threat of higher taxes, many landlords are choosing to sell their properties. This trend is reshaping the property market, particularly in London and the South-East, and poses significant challenges for the future of private renting in the UK.