The number of buy-to-let properties up for sale increased by 25 per cent in April in a sign that more landlords are looking to exit the market.
According to research from Arla Propertymark, out yesterday (May 30), the number of landlords selling their buy-to-let properties rose to an average of five per branch in April, up from four in March and the highest average recorded since May last year.
The professional body polled 384 of its letting agent members this month (May 2019) and found that the north west saw the highest number of landlords exiting the market — seven per branch — while the East Midlands had the lowest sellers at three per Arla branch.
The trend is a sign that landlords have started to feel the effect of tax and regulatory changes on their income, as had been predicted by the Intermediary Mortgage Lenders Association (Imla) in January.
Imla warned this year's tax return would be the first time many landlords will see the effects of the changes on their earnings.
Landlords have been subject to a number of regulatory changes in recent years, with the introduction of an additional 3 per cent stamp duty surcharge on second homes in April 2016, which was closely followed by cuts to mortgage interest tax relief.
Buy-to-let borrowers are also now subject to more stringent affordability testing under the Prudential Regulation Authority's tightened underwriting rules.
Steve Brown, branch manager at Winkworths in Blackheath, said Arla's findings were "very much" what estate agents were seeing at the coalface.
His firm offers yearly valuations to buy-to-let portfolio clients, of which his branch has about 400, and he said about 80 per cent of landlords were taking it up on the offer to see how much their property was worth and many then went ahead to sell.
He added: "On top of this, a lot of landlords are directly coming to us and are saying ‘this is simply not viable anymore’ and want to sell up."
Mr Brown said he thought this trend had been caused by a combination of reduced tax relief and the proposed removal of section 21 orders.
The government proposed a consultation on abolishing the so-called ‘no fault’ section 21 notices — which give landlords the power to evict tenants at the end of their tenancy without a reason — just last month (April 15).
Mr Brown also pointed out that certain landlords had been impacted by local changes to regulation on houses of multiple occupancy rules.
He said: "For example, Greenwich Borough has new HMO rules where if you have three or more people sharing in a property, the landlord has to have a HMO license.
"Although these are fairly easy to acquire, it does cost and they pay extra fees for it."
The market has also seen a reduction in new landlords coming to market — or at least new properties being purchased for buy-to-let purposes — as UK Finance stats showed the number of new buy-to-let purchases dropped by 9.1 per cent year-on-year in March.
Mr Brown thought the rules would primarily hurt renters.
He said: "If landlords have smaller margins, more cost is going to be put on the renter, whether that be fees or an increase in rent.
"I do think rent in general will increase as there will be less supply."
He went on to say that although the move could help first-time buyers who are currently able to buy, as there would be more houses on the market and less competition from potential landlords, it could hurt future first-time buyers (who are currently renters) as the added costs will hurt their saving ability.
Sam Curtis, regional director at Loan.co.uk, agreed that tax changes had hurt the market and said the difference meant some landlords would actually be making a net loss on property.
He added: "I imagine we will see a lot more landlords unload properties in the next two years.
"A lot of the ones I’ve spoken to have buried their heads in the sand but when it actually hits their pockets, many will probably offload a lot more."
Landlords are also being persuaded to sell now to avoid potentially higher capital gains tax if the country was to have a change of government, according to Kay Ingram, director of public policy at advice firm LEBC.
She said: "A number of landlords have decided to sell ahead of the loss of mortgage tax relief and are keen to realise these within current capital gains tax rules amid concerns that a change of government could lead to higher taxes than the current 28 per cent rate."
But Rachel Lummis, adviser at XpressMortgages, said she had yet to see any evidence of a sell off of buy-to-let stock from their landlords.
She said: "While some have said they are considering it, we have yet to see this being actioned.
"We are seeing more landlords purchase via a limited company now rather than in their personal names which is resulting in landlords with portfolios with a mix of ownership in their private name and ltd company."
Ms Lummis added that the type of property landlords liked — typically a two bed flat — had shifted to more high yielding properties such as HMOs and student accommodation, while many were also looking further afield, out of London and Surrey.
imogen.tew@ft.com
What do you think about the issues raised by this story? Email us on fa.letters@ft.com to let us know.
