Landlords are selling up in droves as government policies designed to rein in the buy-to-let market start to eat into their profits.
New figures from landlord association ARLA Propertymark have revealed that an average of four landlords sold their property per estate agency branch in March, compared to three in February.
Landlords have been hit by a raft of changes in the past year as part of the government’s plan to rein in buy-to-let investment.
Last year, the government increased stamp duty on second homes by 3% to help free up property for first-time buyers.
Mortgage interest relief for residential buy-to-let properties has been reduced to the base income tax rate, which is 20%. Landlords were previously able to claim tax relief on the top rate of tax of up to 45%.
The change means landlords will no longer be able to deduct mortgage interest payments or any other finance-related costs from their turnover before declaring their taxable income.
The Bank of England’s Prudential Regulation Authority also introduced tougher underwriting standards and affordability assessments on 1 January to make sure borrowers can cover the cost of their mortgage in the event of an interest rate rise.
David Cox, ARLA Propertymark chief executive, said: “The introduction of mortgage interest relief means the market is becoming less and less attractive to investors and it appears some landlords are, as we predicted, choosing to exit the market rather than pay the higher taxes.”
“What’s more, two-thirds of our members are concerned the government will introduce even more landlord taxes in 2017, which will only further dampen supply.”
The Council of Mortgage Lenders expects the number of buy-to-let purchases for March to halve from 142,000 in the 12 months leading up to the stamp duty change to around 70,000 – a drop of 42%.
According to data from Countrywide, the proportion of homes let by landlords through a limited company reached a record high of 20% in the first quarter.
Landlords who own their properties as a limited company can avoid the changes to taxation and instead pay Corporation Tax, which is currently 20%, but set to drop to 18% from 2020.
By doing this landlords can claim the costs of running their buy-to-let properties as an allowable expense, effectively writing off the cost of their mortgage payments.
The ARLA Propertymark figures also showed a quarter of letting agents saw landlords increasing rents in March.
“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 tenants through higher rents,” said Cox.
Ministers have argued that the new regulations will level the playing field between landlords and homeowners, allowing more first-time buyers to get on the property ladder.
However, experts believe landlords will need to increase rents between 20% and 30% to cope with the extra cost of the tax hikes.
Over the last two decades, the number of privately rented homes has more than doubled from just over two million to more than 5.3 million.
Bernard Clarke from the CML said that while there were concerns about the impact of buy-to-let on affordability for owner-occupiers, growth of the sector had widened choice for tenants and delivered higher standards of accommodation.
“Over a relatively short period, we have seen the introduction of a raft of fiscal and regulatory measures that bear down on landlords and buy-to-let lending. The combined effects have resulted in a significant reduction in new property purchases by landlords, which can be clearly seen from our data. Some of the measures have also encouraged landlords to sell existing rental properties.
“It is still too early to predict long-term effects of all these measures on the balance of tenure. But we may already be beginning to see the reversal of a long period of expansion of the private rented sector.”
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