The latest Ministry of Housing report shows that nearly 4,000 buy-to-let properties are being sold by landlords each month, as a direct result of increased taxation reducing buy-to-let profits.
This year is likely to be the first recorded decline in the number of rental properties in the last 18 years.
Government statistics show the number of privately rented homes in England fell by 46,000 to 4.79 million last year, the largest reduction since 1988. Recent figures from UK Finance also reveal that there were just 5,500 new buy-to-let home mortgage purchases completed in March, some 19% fewer than in the same month last year.
The drastic reductions come two years after the introduction of Government’s punitive tax and other measures: the 3% extra stamp duty introduced on homes bought to let and the limiting of mortgage interest tax relief; tax and other regulatory changes that have hit landlords’ profits hard in recent months. It is now much more expensive to buy and run a buy-to-let property, and returns will be worse than they were two years ago.
Government policy has been successful in deterring landlords from investing in BTL at a time when demand for rental property is on the rise. The private rented sector (PRS) now constitutes 20% of the housing stock, the majority of which is owned by landlords with small portfolios. Consequently, the exodus of small-scale landlords is causing an acute shortage of available properties to rent, particularly in parts of London, according to new research by property website Home.co.uk.
The shortage of rental properties is a UK-wide problem, but is particularly severe in the capital, where there has been a 20% drop in the number of properties available to rent over the last 12 months. Over the same period, there has been a 12% fall in the number of available rental properties across the country and this reduction in supply is leading to a surge in rents, especially in parts of London.
According to Shojin Property Partners, buy-to-let landlords are increasingly looking at alternative property investment opportunities to reduce their tax liability, provide a better return on investment and give them a hands-off and hassle-free investment.
Jatin Ondhia, CEO of Shojin Property Partners, commented:
“As a result of the Government’s increase in stamp duty, it is now much more costly to acquire a buy-to-let property. A £250,000 investment property will incur stamp duty of £10,000 compared to £2,500 for an owner occupier.
“Many landlords have seen their profits eroded by the increased burden of taxation and regulation. They are also facing poor buy-to-let yields especially in London for example, where they are between just 2-3%, while nationwide the average yields are between 6-8%.
“Over the last six months, we have seen a sharp increase in investors diversifying into property crowdfunding, having previously invested in the buy-to-let market. Since the launch of our crowdfunding platform, we have seen many landlords investing in our residential development projects, from as little as £5,000.
“We now offer investors the opportunity to invest across the entire property spectrum. Our success is down to the broad range of investment opportunities we offer, including hands-off buy to let, bridging loans, mezzanine loans, property development and IF ISA (Innovative Finance ISA). Individuals can wrap their investment in an IF ISA and receive tax-free returns. They can also transfer their existing cash ISAs, or open an IFISA account for free and invest up to £20,000 tax free.”