With more fed-up landlords throwing in the towel on property, the mismatch between supply and demand in the buy-to-let sector looks set to get worse, say experts.

What’s the latest?

A growing number of landlords are quitting the buy-to-let sector in the face of tax changes, in line with predictions from property experts.

An average of four landlords per letting agent branch sold up during March, up from three the previous month, according to the trade body, ARLA Propertymark.

The group said the last time the number of investors selling buy-to-let properties had reached this level was in November, when the Government announced its plan to ban letting agents’ fees.

It warned that the higher costs landlords now faced were likely to be passed on to tenants.

David Cox, chief executive of ARLA Propertymark, said: “The market is becoming less and less attractive to investors and it appears some landlords are choosing to exit the market rather than pay the higher taxes.”

“Following the announcement of the ban on letting agent fees, we expect the situation to only get worse for tenants when, inevitably, the costs are passed onto them through higher rents.”

Why is this happening?

Landlords have been hit by a number of tax changes in recent months.

In April last year, the Government introduced a 3% stamp duty surcharge for people buying a second property.

It is also reducing mortgage interest tax relief for landlords, while rules on the ‘wear & tear’ allowance for people letting out furnished homes have also been tightened.

Furthermore, the Government announced plans to ban letting agents from charging fees to tenants. It is feared this cost will be passed on to landlords instead.

All of these changes have impacted the profitability of buy-to-let investments, causing some landlords to exit the market. 

Who does it affect?

Apart from hitting landlords, the situation is bad news for renters.

There was already a mismatch between supply and demand in the private rented sector. And, with more landlords selling up, the situation could get worse.

The Royal Institution of Chartered Surveyors (RICS) has already confirmed that rents are rising faster than house prices, and these increases look set to continue as landlords pass on their own increased costs to tenants.

Sounds interesting. What’s the background?

Earlier this month, AXA warned that a recent study of UK landlords showed that almost half planned to quit the rental market by 2020, because they felt they were being 'unfairly targeted' by the Government.

Apparently the average UK landlord makes £343 rental profit each month after expenses, and profit levels vary across the country, ranging from £297 in the West Midlands to £713 in London.

AXA's research showed that more than 40% believed they were worse off as a result of changes announced in the 2015 Budget, with tax relief for landlords beginning to be phased out from 6 April this year.

One West Midlands landlord told AXA: "Landlords with mortgages on their buy-to-let properties are unlikely to make much profit with the new system coming in. People like me may just decide the new system isn't worth the hassle and sell their properties, leaving less accommodation for people to rent."

Yet demand from potential tenants increased during March, with ARLA members reporting an average 36 people looking to rent a home on their books, up from 34 in February.

One-in-four letting agents saw landlords increase rent during the month, although this was down from 32% in the same month of last year.

But there was some good news, with 3.6% of agents saying they had seen tenants successfully negotiate a rent reduction.

Going forward, two-thirds of letting agents said they were concerned the Government would introduce more landlord taxes in 2017, which they warned would further dampen supply.

Top 3 takeaways

  •   More landlords are quitting the buy-to-let sector because of tax changes
  •   An average of four landlords per letting agent branch sold up during March
  •   Higher costs faced by landlords could be passed on to tenants

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Are you a landlord pondering whether it's time to quit the buy-to-let sector? Tell us by posting a comment below...

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