A fifth (20 per cent) of landlords are considering selling all - or at least part - of their portfolios, according to research.
Nottingham Building Society found tax changes and increasing regulation meant the number of landlords planning to sell now outnumbers those planning to buy more properties.
Steadily reducing tax breaks and rental yields for landlords, combined with the more recent decline in rental prices due to the pandemic, have all contributed to a fall in value of buy-to-let portfolios.
In London, the average gross rental yield was 3.8 per cent in December 2020, compared with 5.9 per cent at its September 2012 peak, according to Zoopla.
But the “biggest” reason for landlords wanting to sell, with more than half (52 per cent) in agreement, was increasing regulation in the sector.
In October 2018, section 21 eviction rules introduced by the Deregulation Act 2015 were extended to apply to most tenants in England.
This legislation makes it harder for landlords to evict tenants even if they’re not paying rent, which exposes landlords to the potential of missed mortgage payments.
Just under a quarter (24 per cent) of landlords put their consideration to sell down to the end of tax relief on buy-to-let mortgages.
The UK government began phasing out this relief back in 2017, replacing it with a tax on landlords’ total income — including their tenants’ rent. Separately, buy-to-let investors can apply to HMRC for a tax credit of 20 per cent.
Landlords in Nottingham BS’ survey also cited the restrictions placed on private residence relief, which had traditionally reduced the capital gains tax due on homes which people rented out after living in them.
Conversely, reasons to buy in the lender’s survey came down to income generation (83 per cent), low cash saving returns (61 per cent), and a belief property prices will rise (57 per cent).
Denise Wells, Nottingham BS’ mortgage operations head, said: “It remains the case that there are potentially strong returns to be earned in the buy-to-let market.”
Pandemic exacerbated issues
Whilst historic issues are still playing a large part in landlords’ decisions to sell up, or at least consider selling up, the pandemic certainly exacerbated them.
About 7 per cent of private renters have built arrears since lockdown began in March 2020, according to the National Residential Landlords Association (NRLA).
According to the NRLA, out of 1,391 landlords it spoke to at the tail end of last year, 60 per cent said they had lost rental income as a result of the pandemic. And 39 per cent of these said losses were continuing to increase.
And as the Bank of England observed earlier this week, “a fall in rental payments may lead buy-to-let borrowers to sell properties quickly, amplifying house price falls in a downturn”.
The sudden rise in rental debt was felt in the number of new buy-to-let mortgages taken out in the year to September 2020, which sat at 42,000 according to UK Finance, down from 52,800 one year earlier.