While London’s renters have had to contend with some of the most extreme rental increases on record, the capital’s landlords appear to be rushing to sell up ahead of tax and compliance changes.
There has been a spike in the number of former rental homes put up for sale in London this summer, TwentyCi reports.
One in five (22 per cent) homes newly listed for sale in inner London have been available to rent at some point in the last decade, the property data analytics company found.
Over 8,000 ex-rentals were up for sale in the capital in July 2024, compared to 4,055 at the same time last year. In July 2019 only 2,664 homes on the market were previously rentals.
“Aside from mortgage increases, landlords have growing fears around a possible rise in Capital Gains Tax and compliance demands for energy efficiencies,” said Colin Bradshaw, chief executive officer of TwentyCi.
“Overall, the rental sector has become much more expensive and unpredictable for landlords over the last decade.”
Landlords fear more tax
Rumours have been swirling ahead of the Autumn Budget that the new Labour government will impose a higher rate of Capital Gains Tax (CGT). CGT is imposed on the profit when an asset is disposed of — such as when a second residential property is sold.
Currently people get a £3,000 tax-free allowance on their capital gains, before paying an 18 per cent rate of tax if they are a basic rate taxpayer, or 24 per cent for higher rate taxpayers. Landlords had a tax-free allowance of £12,300 in the 2020/21 tax year, but it was cut to £6,000 and again this year.
Now there is speculation that Chancellor Rachel Reeves could bring these rates in line with income tax levels, which would mean landlords in higher tax brackets would be taxed on a greater percentage of their profits should they sell up.
Landlords are currently required to ensure that their rental properties have an Energy Performance Certificate (EPC) of an E or above (the most energy efficient rating being an A) or face a hefty fine.
Labour minister for energy Ed Miliband has suggested that landlords will need to achieve a an EPC grade of C or above by 2030, or face a ban on renting the property.
Property now a risky business
The National Residential Landlords Association (NRLA) told Homes & Property that landlords were increasingly finding their investments had become too risky.
“It is not surprising that a significant proportion of properties listed for sale in London are ex-rentals,” said Chris Norris, campaigns and policy director at the NRLA. “Over the last few years, it has become increasingly difficult for private landlords to make a return on their investment leaving them with little choice but to exit the market, reluctantly reducing the stock of accommodation available to rent.”
Tax changes introduced under the Conservatives and the interest rates hikes have made landlords’ costs prohibitively expensive, said Norris.
“When this is combined with chronic uncertainty about potential rental reforms and the prospect of being compelled to make significant additional investment to meet proposed energy efficiency targets, many landlords are looking for alternative, lower-risk investments.”
Dan Wilson Craw, deputy chief executive of campaign group Generation Rent, also criticised the previous government for successively reducing the tax-free allowance for CGT.
“It was reckless for the last government to cut capital gains tax for landlords without putting measures in place to help tenants who face eviction as a result,” he told Homes & Property. “An unwanted move can be devastating for tenants’ financial and mental wellbeing — we need much better protections when landlords want to sell up, including a longer notice period and two months’ rent waived to help with the costs of finding a new home.”
TwentyCi cautioned that this could make life harder for London tenants, who are already paying average rents of £2,399 a month. “Landlords selling now obviously comes at a very difficult point for the private rented sector,” said Bradshaw. “Available properties to rent are at their lowest since TwentyCi has been recording data in the last 15 years.”Ex rental flats will not simply vanish, however. They will either end up sold to corporate landlords — or Londoners looking to get onto the housing ladder after years of renting.
“Beyond the wellbeing of landlords’ current tenants, landlords selling up means that more renters will become first time buyers so the overall effect on the market is neutral,” said Wilson Craw.
