Close up and side view of a classic Georgian building in London, England, UK.
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LONDON — London landlords are selling rental properties at record rates as expected tax hikes from Britain’s Labour government put further pressure on a once-profitable investment sector.
Data published on Thursday by property portal Rightmove showed that almost a third (29%) of homes currently for sale in the capital were previously rented.
Rightmove said the surge reflected a broader increase in rental property sales across the UK, with 18% of properties nationwide having previous tenants.
Rightmove said it was not yet clear whether the figures indicated a “mass exodus” of landlords, but rather a gradual decline in the attractiveness of the rental property sector. The average number of properties for sale over the past five years was 14%, but in 2010 the proportion of rental properties on the market was 8%, Rightmove said.
The company highlighted that it expects tax increases, including a possible increase in Capital Gains Tax (CGT), to be a “potential driver” of sales growth in Chancellor Rachel Reeve’s Autumn Statement on 30 October.
Chancellor Keir Starmer has already warned that October’s budget will be “painful” after his government, which came to power in July, announced it had discovered a 22 billion pound ($29 billion) hole in the national finances.
Reeves declined to be pressed about the contents of his spending plan, telling CNBC in July that such issues would “obviously be included in the budget.”
There is growing speculation about tax increases, including an equalisation of capital gains tax, which would bring it on par with the graduated income tax rate. Currently, owners of rental property must pay a flat rate of tax (18% for basic rate taxpayers and 28% for higher rate taxpayers) when they sell their property.
Mark von Grundherr, director at London-based real estate firm Benham & Reeves, said the potential equalisation of capital gains tax was “of course” a concern for many landlords.
“If a Labor government follows through on this, it could mean the average landlord will pay a huge increase in tax when the time comes to exit the property industry,” he said.
“A series of legislative changes have been introduced in recent years which have hit profitability and this measure will be a further blow to vital providers of much-needed housing in the rented sector.”
The UK rented housing market was once a key area of wealth creation but has come under pressure in recent years following the removal of some incentives, such as tax breaks for property investors. Recent increases in the cost of living and interest rates have also reduced landlords’ ability to purchase homes, with the number of new rented housing loans approved in 2023 expected to fall for the first time since they were introduced nearly 30 years ago.
According to Savills, stock of investment properties and second homes is estimated to be 8.7% lower than three years ago.
This comes amid a broader downturn in the property market, which is now showing some easing as easier borrowing costs following the Bank of England’s August interest rate cut have boosted home-buying activity.
The total number of new properties currently on the market is up 14% compared to 2023, Rightmove said.
Rightmove itself has emerged as a possible takeover target for Rupert Murdoch’s property company REA Group, which said on Monday it saw growth opportunities in the UK market.Still, Rightmove property expert Tim Bannister said the property market recovery may not be felt fully, and warned that a further crackdown on buy-to-let investors could exacerbate existing house price inflation issues in the rental market.
“A healthy private rented sector needs investment from landlords to provide good housing options for tenants,” he said.
“We’ve seen over the last few years that an imbalance between supply and demand leads to rising rents, so there is a concern that if we don’t incentivise landlords to stay in the rental industry rather than exit it, it will be tenants who will pay the price,” he added.
