Property is often seen as a way to generate a passive income or to fund retirement. Yet a survey has found that an increasing number of landlords are considering selling at least a portion of their property portfolio due to tax and regulation changes.

Property can be a useful asset to invest in. However, if you’re thinking about purchasing a buy-to-let property, it’s important you fully understand the responsibilities and potential financial returns. If you already have buy-to-let properties, it’s just as important that you keep on top of changes and understand whether it’s still the right decision for you.

According to a Nottingham Building Society survey published in FT Adviser, 20% of landlords are considering selling all or part of their portfolio. The number of landlords planning to sell outweighs those planning to buy more properties.

There are many reasons why a landlord may be ready to sell, but factors outside of their control are having a big impact.

2 reasons landlords are selling

1. End of tax relief

The number one reason people purchase buy-to-let properties is for income generation. This is one of the reasons 83% of potential buyers gave in the survey. So, if rental yields fall it’s no surprise that more landlords would sell.

Tax relief on buy-to-let mortgages began phasing out in 2017. Landlords are now taxed on their total income, including rental yields, and the relief provided is less generous than it used to be. This has meant many have seen profits fall in the last four years. Some 24% of landlords thinking of selling cited the end of tax relief as a reason.

The pandemic has also exacerbated the issue. As demand fell, average rental prices also fell. While the easing of restrictions has led to a recovery, rent in some areas is still lower than they were at the start of 2020. According to Zoopla, in May 2021 the average rent in Westminster was £2,259 a month, down from the pre-pandemic figure of £2,617 a month in February 2020.

In contrast, house prices have reached a record high, making it an attractive time to sell property.

2. Increased regulation

More than half of landlords wanting to sell cite increased regulation as the reason why. The responsibilities and commitments of landlords have also gradually increased in recent years.

For some, this will have affected profitability. For others who wanted a hands-off approach, it may mean that investing in buy-to-let properties no longer suits their needs. Legal obligations for landlords range from ensuring a property is fit for purpose to having a professional carry out regular gas inspections. You must ensure you meet all obligations as you could risk fines and legal action if you do not.

Once again, the pandemic is likely to have made this issue worse. Emergency measures were brought in to ban evictions to protect tenants who were struggling due to being unable to work, but this also placed further pressure on landlords and potentially affected income.

Is buy-to-let property right for you?

Despite the challenges some landlords are facing, many still see property as a way to build wealth. Low interest rates when saving money have led to 61% of people thinking about becoming a landlord, while 57% also said they believe property prices will continue to rise.

So, is purchasing a buy-to-let property right for you? There’s no one-size-fits-all solution and you need to weigh up the pros and cons with your circumstances and goals in mind. What is important is that you give as much consideration to the drawbacks as the potential benefits.

With landlords facing more pressure, if you do decide to purchase a buy-to-let property, it’s important to find the right mortgage deal for you. You’ll typically need a larger deposit (20%–40%) than if you were buying a home to live in and buy-to-let mortgages will usually be interest-only. This means your repayments will be lower, but you’ll still owe the full amount borrowed when the term ends, so you’ll either need to sell the property, save to pay off the debt, or find another mortgage deal.

With landlords facing increased downward pressure on rental yield, the interest rate on your mortgage becomes even more important. A lower interest rate can have a significant impact on your repayments. Finding a lower rate can help you create a financial buffer if needed and get the most out of your asset.

If you need help finding the right buy-to-let mortgage for you, please contact us. Whether this will be your first property investment or you’re expanding your portfolio, we can help you.

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.