Close-up and side view of classic Georgian architecture in London, England.
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LONDON – London landlords are selling their buy-to-let properties for record prices as Britain’s Labor government anticipates tax hikes that will put further pressure on the once-lucrative investment industry.
Figures published by property portal Rightmove on Thursday showed that almost a third (29%) of homes currently on sale in the capital had been previously rented.
The surge reflects a wider rise in UK rental property sales, with 18% of all listings nationwide having been previously rented, according to Rightmove.
Rightmove said it was unclear whether the figures pointed to a “mass exodus” of landlords, but rather to the declining appeal of the buy-to-let sector. Rightmove said the average proportion of older rental properties sold in the previous five years was 14%, compared with 8% of older rental properties on the market in 2010.
It highlighted that tax increases in Finance Secretary Rachel Reeve’s upcoming Autumn Statement on October 30 – including a possible increase in capital gains tax (CGT) – are expected to be “a key contributor to sales growth” potential driving force.”
British Prime Minister Keir Starmer has warned that October’s budget will be “painful” after the government said it had discovered a £22 billion ($29 billion) hole in public finances when he took office in July.
Reeves declined to be pressed on the content of her spending plan, telling CNBC in July that such issues were “appropriate for the budget.”
Speculation is growing about tax hikes, including the equalization of capital gains tax, which would bring it in line with the graduated rates on which income tax is levied. Currently, buy-to-let landlords must pay a flat rate of tax when selling their property – 18% for basic rate taxpayers and 28% for higher rate taxpayers.
Marc von Grundherr, director of London-based estate agency Benham and Reeves, said the potential balance of capital gains tax was “of course” a concern for many landlords.
“If the Labor government stays the course, the tax paid by the average landlord could increase significantly as landlords exit the industry,” he said.
“Following a series of legislative changes that have already been introduced in recent years that have eroded profitability, this will be another blow to those who provide the vital housing stock that the rental sector so desperately needs.”
The UK buy-to-let market, once a key area of wealth creation, has come under pressure in recent years as a number of incentives have been scrapped, including Tax breaks for real estate investors. The recent cost of living crisis and rising interest rates have also reduced affordability for landlords, with an increase in new buy-to-let mortgage approvals Will shrink in 2023 This is the first time since its launch nearly three decades ago.
Savills said it estimated the stock of investment properties and second homes was now 8.7% lower than three years ago.
At the same time, the real estate market is generally depressed, and the situation is currently easing. Lower borrowing costs after the Bank of England cut interest rates in August have triggered a boom in home buyer activity.
According to data from Rightmove, the total number of new properties on the market is now 14% higher than in 2023.
Rightmove itself has emerged as a possible takeover target for Rupert Murdoch’s property company REA Group, which said on Monday it saw growth opportunities in the UK market. However, Rightmove property expert Tim Bannister said the recovery may not be felt across the board, warning that a further crackdown on buy-to-let investors could exacerbate existing affordability issues in the rental market.
“A healthy private rented sector requires investment from landlords to provide good housing options for tenants,” he said.
“We have seen over the past few years how an imbalance between supply and demand has led to rising rents, so there is a concern that if landlords are not encouraged to stay in the rental industry rather than leave, it will be the tenants who pay the price,” he added.
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