Landlords continue to exit the UK property market, with the sale of another 151,000 buy-to-let and holiday homes in the year to April 5 2023, says national accountancy group UHY Hacker Young.
Neela Chauhan, Tax Partner at UHY Hacker Young, says that buy-to-let properties have become markedly less profitable for many landlords in recent years as they have faced soaring mortgage rates.
The average 5-year fixed-term buy-to-let mortgage rate was just 1.72% at the end of 2021. This rose to 5.55% at the end of September 2023.
Landlords could previously deduct mortgage interest and other finance costs from the rental income from that property to reduce their income tax.
However, after a rule change in 2017, the amount landlords could deduct from their rental income gradually reduced until it was completely replaced by the ability for landlords to lower their tax by 20% on mortgage interest payments.
This change has become particularly painful for landlords in the last two years as mortgage interest costs have increased sharply.
Says Neela Chauhan, Partner at UHY Hacker Young: “The increase in interest rates has hit UK landlords incredibly hard. Many are questioning whether they can continue in the market – and some have already quit altogether.”
“The increase in mortgage costs is not the only issue for landlords – they have been hit hard from all sides in recent years. Tax changes have made it far tougher for buy-to-let investors. Ultimately, it’s renters that will feel the pain from that as the number of properties available falls.”
According to HMRC, £1.8 billion in capital gains tax was paid on sales of buy to let properties from April 6 2022 to April 5 2023.
The number of sales of buy to let properties have dramatically increased since the pandemic, from 98,000 in 2020/2021 to 153,000 in 2021/2022. The past 12 months have seen sales of properties by landlords stay very close to their previous high.
As the cost-of-living crisis continues, renters are less likely to be able to pay their rent, leaving some landlords facing growing rent arrears. As a result, the number of evictions sought by private landlords in the UK rose 42% to 87,390 in the year to the end of June 2023.
