In the recent Budget announcement, Chancellor Jeremy Hunt introduced a reduction in Capital Gains Tax (CGT) from 28% to 24% for higher-rate taxpayers, a move aimed at encouraging property sales among landlords. However, Jo Eccles, head of the London-based buying and selling agency Eccord, believes this tax relief is too minor to motivate landlords to offload their properties.

Eccles points out that the reduction in CGT won’t significantly affect landlords’ decisions for several reasons. Many landlords who bought properties in the last decade, particularly after the market peak in 2014, find their investments worth less than their purchase price. During a recent property tour, Eccles observed that 80% of the properties shown to a potential buyer were either pied-à-terres or buy-to-let investments the owners were keen to sell, often at a price equal to or less than what they paid, eliminating any potential capital gains that could benefit from the tax cut.

The Real Issues – High Mortgage Rates and Rental Income

The decision to sell is more heavily influenced by the rising mortgage interest rates and the change in tax rules preventing landlords from offsetting mortgage interest against rental income. Landlords lacking the financial cushion to reduce their mortgage debts are considering sales to avoid the financial strain of renewing their mortgages at higher rates, especially when rental yields do not cover increased mortgage payments and other expenses.

London’s Rental Market Dynamics

Despite these challenges, London’s rental market, especially for flats, is expanding rather than contracting. This is attributed to the sluggish sales market, which has led to low transaction volumes and disappointing sales values. Consequently, more sellers are becoming “unintended landlords,” choosing to rent out their properties instead of selling at a loss.

Landlords are navigating a fragmented market, with some properties being let quickly while others struggle to find tenants. Although rents are stable, landlords must remain flexible with pricing to avoid vacancies. The discussion around the timely disposal of rental properties is common among landlords, especially as tenancies end and the sales market is tested. However, with property values still not reaching the heights hoped for, many are returning to the rental market, at least for the time being.