The UK’s rental property landscape has long been an area of contention and discussion. A landlord exodus, which could see many properties exit the rental market, has been a pressing concern. Property118 considered whether it is as significant as it seems.
The Landlord Exodus: Separating Fact from Fiction
We’ve often come across headlines about a potential mass exit of landlords from the UK property market. But what do the numbers actually say?
Recent data from the Office for National Statistics (ONS) and Hamptons, a prominent estate agency, sheds light on this topic. The popular narrative suggests a major trend of landlords rapidly selling their properties, but these figures paint a somewhat different story.
A Dive into the Past: Tracking the Buy-Sell Trend
To understand the current sentiment, we need to look at the historical data. Hamptons has meticulously tracked the ratio of properties bought to those sold by landlords each year since 2010, using a combination of their own data and HMRC completion numbers.
- 2010 & 2011: The Golden Years for Landlords
During 2010, landlords were on a buying spree, purchasing 119,230 properties while only selling 38,190. This trend continued into 2011, with 124,160 properties purchased against 57,770 sold. - The Changing Tide post-2016
Fast forward to 2016, and the winds began to change. That year, landlords sold more properties (195,000) than they purchased (159,850). This marked a notable shift in their investment strategy.
Deciphering the Causes: Why are Landlords Selling?
Several reasons can be attributed to this changing dynamic:
- Taxation Turmoil: The announcement by George Osborne about phasing out tax relief on mortgage interest for landlords was a turning point. As Aneisha Beveridge from Hamptons points out, the change, which began in 2017, pushed many landlords, especially those entering the 40% tax bracket, to consider selling.
- Mortgage Mayhem: Rob Dix of Property Hub highlighted the 2016 tax adjustments as a pivotal moment, making landlords feel vulnerable. With escalating mortgage costs and reduced opportunities for offsetting interest, the environment grew less favorable for individual landlords.
- Licensing and Legality: Another notable hurdle is the implementation of selective licensing schemes by various councils. These schemes are viewed by some, including Chris Norris from NRLA, as redundant and burdensome taxes on landlords, which might force them to increase rents or even exit the market altogether.
The Current Financial Climate for Landlords
It’s undeniable that landlords today face rising costs:
- Mortgage Rates: The average two-year fixed-rate buy-to-let mortgage has surged to 6.63%, a considerable increase from 2.94% just two years ago.
- Selling Acceleration: Savills’ research highlights a marked uptick in properties sold by landlords during the pandemic, with capital gains tax data indicating 153,000 properties sold in 2021-22, 8.5% more than anticipated.
- Capital Gains Tax Thresholds: The free allowance for capital gains tax, a significant consideration for property investors, has seen reductions, dropping from £12,300 to £6,000 in April 2023 and scheduled to go down to £3,000 next year.
All these factors cumulatively suggest a growing financial strain on the property investment sector.
Legislation and its Implications
Legislative changes, such as the impending Renters (Reform) Bill, further complicate matters for landlords. Gina Peters, a legal expert, points out that this bill could majorly overhaul the way landlords regain possession of their properties, at a time when repossession case backlogs are already at an all-time high. She emphasizes the need for government intervention to ensure the financial viability of maintaining buy-to-let portfolios.
Future Prospects: Is a Full-blown Exodus Imminent?
While the situation might not be as dire as initially projected, the data does show a consistent trend of landlords selling properties since 2016. As Beveridge notes, while we haven’t witnessed a mass exodus yet, there has been a palpable drop in new investors entering the market.
Recent government decisions, like the scrapping of EPC rule targets, might offer some respite to landlords, but with more regulatory changes on the horizon, the property sector’s future remains uncertain.
In conclusion, while the “landlord exodus” might not be in full swing, various financial, legislative, and market forces are undoubtedly causing ripples in the UK’s property landscape. Investors and potential landlords must keep a vigilant eye on these trends and adjust their strategies accordingly.