Landlords are increasingly selling rental properties due to concerns over a potential increase in capital gains tax (CGT) in the upcoming budget. London has emerged as a focal point, with 29% of homes currently on the market formerly listed as rental properties.
Scotland and the northeast of England are not far behind, with 19% of homes for sale having been rental properties. This trend has been on the rise over recent months, with an average of 14% of rental properties moving to the sales market over the past five years. While this shift signifies a growing trend, property expert Tim Bannister from Rightmove highlighted that it does not yet indicate a ‘mass exodus of landlords.’
The number of new properties entering the sales market overall has risen by 14% compared to the previous year when the market was dampened by high inflation and peak mortgage rates. Compared to 2019, the last pre-pandemic year, there has been a 3% increase in homes for sale.
Bannister pointed out that recent years have made it more appealing for some landlords to exit the rental sector rather than continue investing due to rising costs, taxes, and increasing legislation. ‘We’ve seen how the supply and demand imbalance can drive up rents, so there is concern that without incentives for landlords to remain in the rental sector, tenants could ultimately bear the brunt,’ he said.
Prime Minister Sir Keir Starmer warned that the upcoming budget, due on October 30, would be ‘painful,’ suggesting that those with ‘the broadest shoulders should bear the heaviest burden.’ Meanwhile, Chancellor Rachel Reeves has not dismissed a potential increase in CGT, which currently ranges between 10% and 28% on assets including second homes and businesses.
Marc von Grundherr, Director at Benham & Reeves, expressed apprehensions regarding the impact a CGT hike could have on landlords. ‘This would be yet another blow to those who provide vital housing stock that is sorely needed within the rental sector, following a string of legislative changes already introduced in recent years to dent profitability.’ Despite these concerns, von Grundherr noted, ‘we’re simply not seeing the exodus of landlords that is so often reported, as buy-to-let remains a strong investment with generally good long-term returns despite the ups and downs.’
Recent data reflects growing uncertainty among landlords as they contemplate the financial consequences of a CGT increase. The trend has broader implications for the rental market, as reduced availability of rental properties could further exacerbate the ongoing supply and demand imbalance, leading to higher rents for tenants.
As the government prepares its budget, both industry experts and landlords are urging for careful consideration of the potential ramifications on the rental market and the broader housing sector.
The growing apprehension among landlords regarding potential capital gains tax increases has significant implications for the rental market. As the budget date approaches, all eyes are on the government’s next move, which could impact both landlords and tenants alike.
