The Landlord Exodus: Is the Party Over for Buy-to-Let?

The golden age of buy-to-let might be fading. Landlords, once riding high on rising property prices and generous tax breaks, are now facing a harsher reality. A confluence of factors – stinging tax changes, a mountain of new regulations, and a cooling housing market – is making many reconsider their investment strategies. Could this be the start of a mass exodus from the private rental sector?  

Taxing Times

One of the biggest blows to landlords has been the gradual phasing out of mortgage interest tax relief. Previously, landlords could deduct their mortgage interest payments from their rental income before calculating their tax liability. Now, they can only claim a 20% tax credit, significantly increasing the tax burden, especially for higher-rate taxpayers.   

To illustrate, imagine a landlord with a £200,000 mortgage at 4% interest. Under the old system, they could deduct the £8,000 annual interest from their rental income. Now, they’ll pay tax on that £8,000, potentially at a rate of 40% or even 45%. This equates to an extra tax bill of £3,200 or £3,600 respectively. Ouch.   

Regulation Overload

On top of the tax changes, landlords are grappling with a wave of new regulations. Here are just a few examples:   

• Section 21 Scrappage: The government is planning to abolish Section 21, which allows landlords to evict tenants without giving a reason. This will make it harder to remove problematic tenants, potentially increasing costs and risks for landlords.   
• Energy Efficiency Standards: Landlords are facing a ticking clock to improve the energy efficiency of their properties. By 2025, all new tenancies must have an Energy Performance Certificate (EPC) rating of C or above, with all existing tenancies following suit by 2028. This could mean hefty investment in insulation, new boilers, and double glazing.   
• Pet-Friendly Policies: It’s becoming increasingly difficult for landlords to refuse tenants with pets. While this is good news for animal lovers, it could lead to increased wear and tear on properties and potential disputes with neighbours.

The Bottom Line

These tax hikes and regulatory burdens are squeezing landlord profits and making buy-to-let a less attractive investment. Many are choosing to sell up, potentially reducing the availability of rental properties and pushing up rents.  

While it’s unlikely that the private rental sector will disappear entirely, the landscape is changing. The era of the amateur landlord may be coming to an end, replaced by larger, professionalized operations better equipped to navigate the increasingly complex regulatory environment.   

Check out this video that goes into further depth about this topic:

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Rizwan Moledina

Riz is the founder of homes2let and has been in real estate for over twenty years. He has a background in economics and is a real estate developer and buy to let investor.

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