Thinking about purchasing a buy-to-let property? You may be swimming against the tide as many landlords are exiting the sector following Government tax changes.

The number of homes available in the private rental sector has shrunk by more than 100,000 since tax changes impacting landlords were introduced.

The exodus comes after the Government began restricting the amount of mortgage interest tax relief buy-to-let investors could claim.

Since the change, which is being introduced in phases, was first introduced in April 2017, 103,900 more buy-to-let properties have been sold than those that have been purchased, according to estate agent Savills, which analysed mortgage data.

Lawrence Bowles, senior research analysts at Savills, said: “With tax relief on landlords’ mortgage interest shrinking, it’s become harder to make a profit from a mortgaged buy-to-let property.”

The situation means that demand in the private rental sector is already outstripping supply.

Why is this happening?

Since April 2017, the Government has been steadily reducing the amount of mortgage interest tax relief landlords can claim from 100% to just 25% now.

The relief will be phased out completely in April next year, when it will be replaced by a 20% tax credit for mortgage interest.

The move not only leaves landlords facing higher tax bills, but it has also pushed some basic rate taxpayers into the higher rate band.

It comes on top of other tax changes including an end to the ‘wear and tear’ allowance and the introduction of a 3% stamp duty surcharge for people buying second homes or buy-to-let properties.

The combined changes have made it less profitable to be a landlord, leading to many investors selling up.

Who does it affect?

The situation is bad news for people who rent in the private sector, which is already struggling to keep pace with demand.

The Royal Institution of Chartered Surveyors has reported that the number of new homes coming on to the market to let has been in steady decline, while the number of people looking to rent a home has reached its highest level since the end of 2016.

It warned that the situation was putting upward pressure on rents.

But the fall in buy-to-let landlords has been better news for first-time buyers, as the two groups typically compete for properties at the bottom of the housing ladder.

What’s the background?

Savills said the number of landlords selling properties was most acute in southern regions, such as London and the south east, where property prices are higher and yields are lower.

They are instead purchasing properties in northern regions where the higher yields cover their increased costs.

But high house prices in the south means demand for rental property is greater there as it takes people longer to get on to the housing ladder.

Top 3 takeaways

  • The number of homes available in the private rental sector has shrunk by more than 100,000 since tax changes impacting the sector were introduced
  • The exodus comes after the Government began restricting the amount of mortgage interest tax relief buy-to-let investors could claim
  • Demand in the private rental sector is already outstripping supply.

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