Private landlords in the United Kingdom are trimming their property portfolios in response to the unfavourable policies implemented by recent Conservative governments, despite witnessing a notable surge in rental income from buy-to-let properties.
The most recent research conducted by Benham and Reeves has scrutinized the scope of investors' property holdings during the first quarter of 2022 in comparison to the corresponding period this year.
The agency's findings reveal that landlords in England and Wales have witnessed an 8.7% rise in rental income from their property portfolios, elevating the average landlord's annual portfolio income from £67,304 to £73,186 over the past year. Surprisingly, however, the size of buy-to-let portfolios has contracted by 5.6% year-on-year, dwindling from 9.1 properties to 8.6. This trend is more pronounced in certain regions.
In Wales, it appears that buy-to-let landlords are exiting the market in droves, with portfolio sizes plummeting by a staggering 42.9%, decreasing from an average of 12.6 in 2022 to 7.2 in 2023.
In England, the East Midlands is the worst-hit region, where landlords have typically downsized their portfolios by 33.9%, dwindling from 11.8 to 7.8 properties.
Likewise, significant reductions were observed in the North West (-17%), where the average portfolio size dropped from 10.6 to 8.8 properties.
It is likely that regions with more affordable housing prices are attracting new investors with smaller portfolios, thus contributing to the decline in the average portfolio size.
Over the past few years, changes in taxation and regulations have adversely impacted buy-to-let investors, leaving many landlords struggling to generate profits.
Furthermore, the investment climate appears to be deteriorating in the coming years, with landlords who sell their properties from April next year being granted a personal capital gains tax allowance of only £3,000, down from £6,000.
Section 21 eviction notices are slated to be abolished, potentially making it more challenging for landlords to deal with problematic tenants.
Moreover, investors with less energy-efficient properties will be required to upgrade their homes to attain an Energy Performance Certificate (EPC) rating of C by 2028 in order to rent them out, a potentially expensive undertaking for those holding older housing stock.
It is worth noting that this trend of shrinking property portfolios is not uniform across all regions. In the East of England, typical portfolio sizes have actually increased by 43.8% year-on-year, surging from 6.4 in Q1 2022 to 9.2 in Q1 2023.
There have also been modest increases in Yorkshire and the Humber (11.1%), the South East (10.1%), and the West Midlands (8.2%).
However, the remaining six regions have all experienced declines in portfolio sizes, with the North East (-1.0%), London (-1.3%), and the South East (-3.8%) seeing only marginal reductions.
Marc von Grundherr, the director of Benham and Reeves, commented on the situation, stating, "It's becoming increasingly challenging for landlords to maintain profitability, and this impact is becoming evident. The loss of income tax relief has had a significant impact, and many investors are understandably concerned about impending changes to Capital Gains Tax, minimum EPC requirements, and the removal of Section 21 eviction rights.
"The shrinking portfolio sizes should serve as a warning to the government. The tax landscape appears to be unfairly skewed against landlords, and unless authorities want to witness a continued decline in rental properties in the years ahead, they may need to reconsider some of these unfriendly policies that are prompting professional landlords to exit the market.
"However, there are alternative challenges associated with divesting buy-to-let properties at present. While many of our landlords are dissatisfied with rising mortgage costs, they comprehend the challenges of the current resale market conditions. Consequently, they are opting to retain their existing investments in the medium term, awaiting a strengthening of market values"
Taken from Property Industry Eye | https://propertyindustryeye.com/government-policies-force-btl-landlords-to-reduce-portfolios/