The number of landlords planning to reduce their residential portfolio hit a 10-year high at the end of 2019, according to research by Simply Business.
The study found that 26% of landlords were considering selling up in 2020 after the government announced a series of tax increases and government reform.
One of the main reasons for selling up was the shifting goal post of House in Multiple Occupation (HMO) licensing. New rules have impacted room sizes and banned charging tenants with admin fees.
Other reasons included:
- Rental costs rising
- Profiting from their investment
- Economic instability
- Property market decrease
Changes to tax relief on finance costs on residential properties were introduced on 6 April 2017, and when fully implemented next year in 2021, will restrict costs to the basic rate of income tax.
Before April 2017, landlords could deduct their mortgage interest costs from their income as part of their tax return.
Richard Lambert, chief executive of the National Landlords Association (NLA), said:
“The government needs to look at the impact these policies will have on the private rented sector.
More and more people are relying on this sector for a home, so it is vital that landlords not only provide a high standard of accommodation, but are incentivised to do so by the prospects of a reasonable return on investment.
It is our view that these policies are undermining the viability of many landlords’ businesses and removing the incentives to invest in residential property for business purposes.”
Has Coronavirus made plans to sell up more difficult?
Whilst over half of landlords were hoping that rental yields would increase in 2020, the impact of coronavirus has meant that the yields across the rental market have remained relatively unchanged, currently sitting at an average of 3.5%, a 3.6% decrease since the pandemic began.
Howsy, the lettings platform which commissioned the research, said:
“Possible pandemic-induced house price falls while rental demand remains high could mean an increase in yields”
Despite this, landlords will have still found it difficult to sell up due to the restrictions during lockdown, which stopped many potential buyers from having viewings.
Contact us about tax changes that affect landlords.