Landlords are offloading 3,800 buy-to-let properties a month leading to the first drop in the number of homes available to rent in 18 years, official figures confirm.
The latest Ministry of Housing report shows the number of privately rented homes in England fell by 46,000 to 4.79 million last year – the largest reduction since 1988.
The figures come two years on from sweeping tax reforms to the buy-to-let sector which have bitten hard, decimating profits for thousands of British landlords.
It marks the end of a rise in the volume of rental dwelling stock that has been ongoing for nearly two decades.
Source: Ministry of Housing, Communities and Local Government
A number of tax and regulatory changes have hit landlords’ profits in recent months, including the limiting of landlords’ mortgage interest tax relief from April 2017 and the introduction of a 3 per cent stamp duty surcharge in April 2016.
It means it is now much more expensive to both buy and run buy-to-let properties than it was two years ago.
David Cox, chief executive of letting agent trade body ARLA Propertymark, said: ‘The barrage of legislative changes landlords have faced over the past few years has meant the buy-to-let market is becoming increasingly unattractive to investors.
‘Landlords are either hiking rents for tenants or choosing to exit the market altogether to avoid facing the increased costs incurred.’
The figures coincide with research from Simple Landlord Insurance which revealed that a third of landlords with just one rental property are planning to sell and give up on buy-to-let.
But analysis from research group Capital Economics suggests the decline may not last.
‘The reduction in rented properties could be a one-off, where the weakest investments are weeded out by landlords seeking to trim their debt levels,’ said Hansen Lu, property economist at the firm.
‘That said, if anything, buy-to-let mortgage lending has softened further in recent months, suggesting that the sell-off may be intensifying.
‘And with buy-to-let returns unlikely to improve anytime soon, any rise in the stock of privately rented dwellings is likely to come from the build-to-rent sector, not buy-to-let.’
Earlier this month, data from trade body UK Finance revealed that there were just 5,500 new buy-to-let home mortgage purchases completed in March, some 19 per cent fewer than in the same month last year.
The Government’s tax reforms mean it is now far more expensive to purchase a buy-to-let – with stamp duty on a £250,000 investment property totalling £10,000 for an investor compared to £2,500 for an owner occupier.
The number of privately rented homes in England has fallen for the first time in 18 years
According to buy-to-let broker Mortgages for Business, professional landlords consider the changing rental landscape an opportunity to expand their portfolios.
The broker’s research suggests that while 15 per cent of landlords are looking to sell properties before July 2018, nearly 44 per cent said they planned to expand their portfolio before this date.
Mortgages for Business’s Steve Olejnik said: ‘There is such a wide variety of investors in the private rented sector that this really isn’t a case of one size fits all.
‘While some investors are saying enough is enough and starting to sell up, others are seeing this as an opportunity to buy up portfolios from landlords who have decided to throw in the towel.’
John Goodall, chief executive of peer-to-peer buy-to-let lending platform Landbay, said: ‘Regulatory and legislation changes in recent years might have been enough to deter some dinner party landlords with one or two properties from the market, but it is a small price to pay for professional seasoned landlords who are in it for the long-term.’
HOW HAS BUY-TO-LET CHANGED IN THE PAST TWO YEARS?
Former Chancellor George Osborne first announced a tax raid on landlords in 2015, stating the move was designed to support home ownership amid claims that landlords were scooping up properties and making it harder for hopeful first-time buyers to compete.
Intending to put a stop to this, the Government slapped a 3 per cent surcharge on stamp duty payable on new buy-to-let purchases from April 2016. This trebled the tax bill compared to residential property in some cases.
A further change arrived in April last year, as landlords began to lose their tax relief under a rule known as Section 24, which forces them to pay tax on their rental income rather than just on their profit after mortgage costs.
Furthermore, the Bank of England also clamped down on mortgage lenders, forcing them to require landlords to earn a much higher ratio of rental income compared to their mortgage payments.
In October last year, yet more rules were brought in for landlords with four or more mortgaged properties to ensure their debt levels are not too high.