With 32% of landlords looking to sell, why are landlords selling up?

By Georgia Galloway | Wednesday 1st May | 10 minute read

Higher taxes, increased mortgage costs, and increased maintenance, repair, and management costs due to inflation have contributed to landlords' desire to leave the market.

Landlords sold 300,000 more homes than they purchased between 2016 and 2023, and in 2024, 32% of landlords are looking to sell.

Why are landlords selling up?

Why are landlords selling up in the UK?

Increasing costs are causing landlords to sell their rental properties. However, there are other issues landlords are concerned about.

Despite increasing demand for rental accommodation and monthly rents at an all-time high, a third of landlords are looking to sell their properties.

Our 2024 survey of 755 UK landlords discovered that 32% of landlords are looking to sell their rental properties, and the following are their biggest concerns:

How do landlords feel about the following in the UK?

% of landlords Concerned or Strongly Concerned

Inflation

81%

Risk of recession

66%

Cost of living

65%

Energy prices

64%

Borrowing costs

63%

Property investment opportunities

61%

EPC ratings

60%

Property crash

60%

Capital Gains Tax allowance

60%

Mortgage interest rates

60%

Upcoming UK general election

59%

Property market

57%

How does legislation influence landlords' decisions to sell?

The Renters (Reform) Bill was first introduced in May 2023. According to the government, it would deliver on its commitment to “bring in a better deal for renters” and abolish Section 21 (‘no fault’) evictions, where tenants can be forced to move without reason. And this proposed change is a source of concern for landlords.

Last year, we asked UK landlords how they felt about Section 21’s abolition, and 46% were either Concerned or Strongly Concerned.

But the bill’s progression through Parliament has been slow. This March, changes to the bill were made after 47 Conservative MPs called for changes, including delaying the ban on no-fault evictions. These MPs (14 of whom are themselves landlords) raised concerns that the legislation would see more landlords sell up, reducing the number of rental properties available.

In 2023, it was discovered that the Renters (Reform) Bill was why 49% of landlords were looking to sell their properties. 


Are mortgage arrears prompting landlords to sell?

Increased mortgage expenses beyond initial projections affect landlords and buy-to-let property investors. You are officially in arrears if you miss two or more months of mortgage repairs. When an arrears situation develops to the point where there’s no likelihood of mortgage payments being made, lenders may seek to repossess the property.

In the final quarter of 2023, 13,570 buy-to-let (BTL) mortgages were in arrears. Whilst these arrears were mostly low-value, the number of landlords in arrears has more than doubled, with 124% more than the previous year. 

Approximately 8 out of 10 BTL mortgages are interest-only, and the increase in interest rates has hit landlords hard with rising mortgage costs. This has prompted more landlords to sell, further exacerbating the lack of available rental homes. 

Have mortgage rates increased?

Interest-only mortgages are popular with BTL landlords as they traditionally require lower monthly payments. However, landlords have experienced a 283% increase in their monthly interest costs with spiralling interest rates since 2021. 

Landlords on fixed-rate mortgages have also experienced an increase. 

A prolonged period of high inflation resulted in the Bank of England increasing the base rate 14 consecutive times from December 2021 to a 15-year high of 5.25% in August 2023, culminating in average buy-to-let rates peaking at 6.79% in August 2023.

Although the current 5.5% average BTL mortgage rate is below last year’s peak in August, it’s still much higher than the 3.06% average rate from February 2022.

Have bridge loan rates increased?

The interest rates for bridging loans in the UK currently range from 0.44% to 2% per month. The average bridge loan monthly interest rate at the end of 2023 was 0.91%, an increase from the 0.79% average interest rate at the start of 2023.


What issues do landlords face when selling their property?

Selling any property is considered one of the most stressful experiences someone can have, full of situations that could derail the entire process. For landlords, these issues can be further exacerbated due to potential complications with existing tenants, tenancy agreements, tax implications, and the property's condition following the tenancy.

What are the tax implications for landlords selling?

Landlords may need to pay Capital Gains Tax (CGT) or Corporation Tax when selling rental properties.

Capital gains tax (CGT) is charged on the profits from selling an asset, such as a property. Still, it could also include other investments or valuable non-essential assets (such as antiques).

The tax-free allowance was £12,300 for 2022-23, but it was dramatically cut to its current allowance of £6,000. From April 2024, it will be reduced again to just £3,000 - effectively increasing people's tax bills and impacting landlords when selling investment properties that generate a profit above £3,000.

And a growing number of landlords are concerned about CGT.

For the 2024/25 tax year, CGT is charged at either 10% or 18% for basic rate taxpayers. The rate is either 20% or 24% for higher or additional rate taxpayers.

Last year, when we asked about CGT, 45% of landlords were Concerned or Strongly concerned. 

This year, a combined 62% are Concerned (36%) or Strongly concerned (26%) about Capital Gains Tax.

Gains made by selling properties through a limited company are subject to Corporation Tax rather than CGT. The current rate of Corporation Tax is 19%, so if you’re a higher-band taxpayer, you’ll have a smaller tax bill.


What is the impact of landlords selling?

With more landlords selling their properties, there is an immediate impact on their tenants and a lasting impact on the UK housing market.

What is the impact on tenants?

With more landlords looking to sell their BTL properties, rental availability is decreasing, leading to increased demand for rental accommodation. Indeed, our survey discovered that 71% of landlords experienced an Increase or Significant Increase in demand for their properties from would-be tenants. This, in turn, increases monthly rental costs and further exacerbates renters' inability to save enough money to get onto the property ladder.

As landlords sell their rental properties, tenants will either have new landlords should the buyer look to continue renting out the property or will have to find a new place to live.

Our poll of 1,001 renters in 2023 discovered that 46% of tenants are worried about the security of their property and the risk of their landlords selling up. 

What is the impact on the housing market?

Landlords selling up and leaving the private rental sector impacts the UK housing market by influencing property prices, rental availability, and the housing market's overall dynamics. 

  • Increasing rental prices: While rental supply may increase initially, reduced rental property availability in the long term could lead to higher rents, making it less affordable for tenants.
  • Property supply: An increase in rental properties on the market could temporarily increase housing supply, benefiting tenants in the short term. Alternatively, rental stock could decrease further if the properties sold are unavailable to tenants.
  • Opportunity for first-time buyers: As property prices stabilise or dip slightly due to increased supply, they may find it easier to enter the property market. Although even with more properties available to first-time buyers, there is still the issue of affordability and the ongoing issue of the inability to save for a deposit or achieve a mortgage offer.

What happens when a landlord sells the property?

Before the Sale

  • Valuation and Preparations: At the earliest stage, once a landlord decides to sell, they will evaluate the property and complete any initial repairs or refurbs to get the property ready for valuation to go on the market.
  • Tenancy Considerations: If tenants are in the property, the landlord must decide whether to sell it vacant or with tenants in place (as a going concern to other investors). This decision will influence the timing of the sale, and the tenant will need to be informed. Depending on the relationship between the landlord and the tenant, this may be a difficult conversation to have. 

If Tenants Are in Situ

  • Rights of Tenants: Tenants' rights must be respected throughout the sale process, including receiving proper notice if they need to move out.
  • Transfer of Tenancy: If the property is sold with tenants in place, the tenancy agreement transfers to the new owner under the same terms until it naturally ends or is renegotiated.

Legal and Financial Considerations

  • Notifying the Lender: If the property has a mortgage, the landlord must inform the lender of their intention to sell and discuss any implications, such as early repayment charges.
  • Capital Gains Tax (CGT): The landlord will need to consider the implications of CGT on the sale, particularly if the property has increased in value since purchase.

During the Sale Process

  • Engaging an Estate Agent: Most landlords will engage an estate agent to market the property, find a buyer, and facilitate viewings.
  • Conveyancing: Once a buyer is found, both parties will engage solicitors or conveyancers to handle the legal aspects of the sale, including the transfer of ownership, contracts, and any searches or enquiries.

Completion and Aftermath

  • Completion of Sale: On completion day, ownership officially transfers to the buyer, and any outstanding mortgage on the property is settled from the sale proceeds.
  • Notifying Relevant Parties: The landlord should inform any utility providers, local authorities (for council tax purposes), and other relevant parties of the change in ownership.
  • Capital Gains Tax Reporting and Payment: The landlord must report the sale to HM Revenue & Customs (HMRC) and pay any CGT due within a specific timeframe.

Will landlords be worse off by selling their properties?

Most landlords leaving the market are set to be worse off due to the changes to Capital Gains Tax, despite the Chancellor’s claims that his changes will encourage landlords to sell up and increase the housing supply for first-time buyers.

Most landlords who sell their properties will end up paying more tax than they would have done two years ago, not less as the Chancellor claims. Landlords who are aware of the ramifications of the updated tax are likely to be disincentivised to sell. 

The latest analysis suggests that the recent changes to CGT will impact landlords, making the smallest gains the hardest.

Region

Average CGT bill before April 2022

Average CGT bill from April 2024

Change (%)

Change (£)

North East

£7,928

£9,027

14%

£1,099

Yorkshire & the Humber

£9,578

£10,441

9%

£864

North West

£9,844

£10,670

8%

£826

Wales

£10,024

£10,824

8%

£800

East Midlands

£10,139

£10,923

8%

£784

West Midlands

£10,400

£11,146

7%

£746

South West

£12,324

£12,796

4%

£471

East of England

£14,014

£14,244

2%

£230

South East

£14,748

£14,873

1%

£125

London

£24,327

£23,084

-5%

-£1,243

How many landlords are looking to invest in property?

This year, landlords' intentions to invest in property have increased, as 51% said they think they'll buy an investment property in 2024.

Last January, 45% of landlords said they would invest in 2023. 30% didn't think they'd invest, and 24.58% didn't know. Our survey has discovered that 40% of landlords did buy rental properties last year.

Of those who think they'll invest further in property this year, 85% already own 2 or more properties. They tend to have 3 or more years of experience (88%) as landlords, and 57% already own properties in London.

Since the poll was completed, the Chancellor has abolished multiple dwellings Stamp Duty Land Tax (SDLT) relief from June 1 2024. Whilst the abolition intends to remove claims that abused the relief (investors claiming a luxury house was a multiple dwelling due to an annexe or "granny flat"), at first sight, its removal could prevent legitimate investment from landlords from investing.

How can a bridge loan be used to invest in property?

Bridge loans are often used during property investment transactions. They provide fast funding for quick property purchases of any type, for example, securing an auction property, purchasing an unmortgageable property, or property development.

Bridge loans are typically secured against one or more properties, although other assets, such as land, qualify as security. When taking out a bridging loan, borrowers need a viable exit strategy to repay the loan. This strategy typically involves selling an asset or refinancing the asset to a longer-term finance source, such as a buy-to-let mortgage.

£300k can be accessed in just 3 days, £750k in 7 days, and up to £250m via bridging loans from 14 days.

So when landlords discover a time-sensitive opportunity to purchase a new rental property, bridge loans can ensure fast funding that other types of finance cannot.

Of the UK landlords who used a bridge loan for their property investments, 64% said that lending criteria flexibility was the most important factor in deciding to use this type of short-term finance.

As bridge loans can provide borrowers with fast funding (£300k in 3 days, £750k in 7 days and even up to £250m from 2 weeks) and can ensure time-sensitive opportunities aren't missed, urgency/speed was the reason 54% of people utilised a bridging loan.

The other top reasons for using a bridge loan when buying a BTL property were maximising the loan amount, requiring a loan size that wasn't obtainable via traditional lenders, and purchasing an unmortgageable property.


What's in store for landlords in the future?

The UK rental market is undergoing significant changes, presenting challenges and uncertainties for landlords. Several factors are shaping the future of the sector, including:

  • Legislative Changes: Proposed legislation, such as the Renters Reform Bill, aims to ban no-fault evictions and introduce stricter regulations for the private rental sector. The Bill has been amended multiple times, but no one of the key concerns for landlords is the proposed abolition of Section 21 (no fault) evictions. 
  • Taxation Policies: The UK government has implemented tax policies that have affected landlords, such as the reduction in mortgage interest tax relief and increased capital gains tax. These policies have made it less financially attractive for landlords to retain rental properties, yet another reason many are looking to sell their properties.
  • Growing Arrears and Management Issues: Many UK renters struggle with rent payments due to the cost-of-living crisis. Landlords face challenges managing their properties, including increasing repairs and maintenance costs and tenant disputes.

These factors all contribute to the decreasing number of landlords operating in the UK. According to a recent survey, one in ten landlords plan to sell their properties due to the Renters Reform Bill. This could further squeeze the availability of rental housing, leading to higher rents for tenants.

Landlords are also facing increasing competition from institutional investors purchasing properties for rent. These investors often have cheaper financing and can offer more competitive rents.

Despite government efforts to reassure landlords, the private rented sector faces challenges that could lead to a decline in supply and higher costs for tenants. Landlords are advised to carefully consider their investment strategies and the regulatory environment in the UK before making any decisions about their properties.


Final thoughts

In conclusion, numerous factors, such as higher taxes, increased mortgage costs, regulatory changes, and challenging economic conditions, are spurring many landlords to sell up. Despite rising demand for rental accommodation, the UK rental market is experiencing a seismic shift, making property investment less financially attractive for landlords, ultimately impacting tenants' housing costs in the short term to their detriment.

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