Landlords are increasingly selling rental properties due to fears of a potential capital gains tax (CGT) increase in the upcoming budget. This trend is most evident in London, followed closely by Scotland and the northeast of England.
The overall number of new properties entering the sales market has risen, driven by various factors including rising costs, increased taxation, and more stringent regulations. Experts are concerned about the broader implications for the rental market.
The Property Market Dynamics
Landlords are increasingly putting their rental properties up for sale due to concerns over a potential hike in capital gains tax (CGT). This trend is especially pronounced in London, where 29% of homes on the market were previously rental properties. Scotland and the northeast of England follow closely, with 19% of homes for sale having been rental units.
According to Tim Bannister, a property expert at Rightmove, while this shift represents a significant trend, it does not yet indicate a ‘mass exodus of landlords.’ The overall number of new properties entering the sales market has risen by 14% compared to last year, when high inflation and mortgage rates subdued the market. Compared with 2019, there has been a 3% increase in homes available for sale.
In recent years, various factors have made it more appealing for landlords to exit the rental sector. Rising costs, increased taxation, and more stringent regulations have contributed to this shift. Bannister highlighted the concern that without incentives to keep landlords in the rental sector, tenants might ultimately bear the brunt of reduced rental property availability and increased rents.
Government’s Position on CGT
Prime Minister Sir Keir Starmer has already indicated that the upcoming budget, scheduled for 30 October, will be ‘painful,’ suggesting that those with ‘the broadest shoulders should bear the heaviest burden.’ Chancellor Rachel Reeves has not ruled out an increase in CGT, which is currently levied at rates between 10% and 28% on assets like second homes and businesses.
Marc von Grundherr, Director of estate agent Benham & Reeves, has expressed concern over the impact a CGT hike could have on landlords, especially given the series of legislative changes that have affected their profitability in recent years. He noted, ‘This would be yet another blow to those who provide vital housing stock that is sorely needed within the rental sector.’ Despite these challenges, von Grundherr pointed out that buy-to-let remains a strong investment with generally good long-term returns.
Current Trends in the Housing Market
Data indicates a growing apprehension among landlords as they weigh the financial implications of a potential CGT increase.
The recent months have shown an average of 14% of rental properties moving to the sales market over the past five years.
This trend could have broader implications for the rental market. Reduced availability of rental properties may exacerbate the existing supply and demand imbalance, further driving up rents for tenants.
Expert Opinions and Industry Concerns
As the government prepares its budget, industry experts and landlords alike are calling for careful consideration of the potential consequences on the rental market and the wider housing sector. Without incentives to remain in the rental market, there is a fear that more landlords might opt to sell, worsening the situation for tenants who already face rising rents and fewer rental options.
Bannister noted, ‘We have seen how the supply and demand imbalance can drive up rents, so there is concern that without incentives for landlords to remain in the rental sector, tenants could ultimately bear the brunt.’ This perspective highlights the interconnected nature of the property market and the importance of balanced policies to maintain stability.
The Role of Legislation in the Rental Market
Recent legislation has played a significant role in shaping landlords’ decisions to sell their rental properties. Increasing costs and taxes, along with more stringent regulations, have made the rental market less attractive to many property owners.
The concern that tenants will face higher rents and fewer options if more landlords decide to sell is a pressing issue. The government’s budget considerations will need to address these potential outcomes to avoid exacerbating the current supply and demand imbalance in the rental sector.
Without a carefully balanced approach, the rental market could face further instability, impacting tenants and landlords alike.
Long-term Impact on the Housing Sector
The potential increase in CGT is part of a broader trend in the housing market. Landlords are not only responding to immediate financial pressures but also to long-term considerations about the viability of remaining in the rental market.
As von Grundherr noted, buy-to-let properties have generally offered good long-term returns despite short-term challenges. However, continuous legislative changes and financial pressures could alter this perspective, prompting more landlords to reconsider their positions.
The long-term impact of these trends will depend on the government’s approach to balancing fiscal policies with the needs of the rental market. A nuanced approach could help stabilise the market and address the concerns of both landlords and tenants.
Implications for Tenants
Tenants are likely to feel the effects of these market shifts most acutely. Reduced availability of rental properties can lead to higher rents and fewer choices, exacerbating the challenges faced by those seeking affordable housing.
The government’s role in addressing these challenges will be crucial. Policies that consider the needs of both landlords and tenants could help mitigate the negative impacts and ensure a more balanced and stable rental market.
The potential increase in CGT is creating significant apprehension among landlords, leading many to sell their rental properties. This trend could exacerbate the supply and demand imbalance in the rental market, further driving up rents for tenants.
As the government prepares its budget, careful consideration of the potential consequences on the rental and wider housing markets is essential. A balanced approach is needed to maintain stability and address the concerns of both landlords and tenants.
