Mass exodus of landlords? Some are taking a far more pragmatic approach

This week, there have been warnings that the buy-to-let market is looking ‘increasingly bleak’ and that landlords are deterred from entering the sector, or quitting it altogether as a result of tax changes.

However, despite scaremongering that there will be a ‘mass exodus’ of landlords, we are finding our landlords are taking a far more pragmatic approach, and I think this could be for four main reasons.

Firstly, the recent tax changes have been cited as a reason why we should expect landlords to leave the buy-to-let market en masse. But in reality, while the tax changes may cause a few landlords to reconsider their position, overall, the impact on the market has been exaggerated considerably.

For one thing, not all landlords are affected by the changes - it is only higher rate tax payers with a mortgage that will be affected. And even then, these landlords are still only going to be experiencing a phased reduction in what they can claim in mortgage interest relief. For landlords that I’ve spoken to although unwelcome, it is not enough to make them want to change their entire investment strategy.

Secondly, even if a landlord was thinking of leaving the market, they will not just ‘sell up’ as a knee-jerk reaction to this change in the rules. If they have made the decision to sell, that is one thing, but actually doing it is another.  They will have to consider the marketplace in which they are selling, and if they think the price they will get at that time is too low, they may decide to postpone the decision to sell and continue renting.

Thirdly, around 30% of landlords are accidental. By which I mean that they have not made active decision to become a landlord because they never actually intended to invest in property.

In most cases, accidental landlords have either inherited a property, which they then decided to rent out rather than sell, or they have had to move for work and find themselves needing the income from the property they already own. These landlords are not going to be forced out of the market by a tax change.

And finally, and probably most importantly, even when you consider that buy-to-let is perhaps not as profitable as it once was, what are the other options? 

Interest rates are still at record lows, which means borrowing is cheap, but savings are earning next to nothing in interest, so landlords are unlikely to sell up and put the money in the bank. And the current political and economic climate means the stock market is so volatile, both at home and abroad, that it is not an attractive option either.

So yes, some landlords may be leaving the market, but most are taking a far more realistic look at the market and concluding that they would still rather invest in property than anything else.

Paul Sloan is operations director at Spicerhaart Lettings

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    "For one thing, not all landlords are affected by the changes - it is only higher rate tax-payers with a mortgage that will be affected."

    This is completely wrong, many Landlords (me being one) who were previously basic rate tax-payers are now deemed as a result of this tax change to be higher rate tax-payers. What is more is that such Landlords will be taxed at 20% or 25% of deemed profit that they have not actually received.

  • phil dillon

    This is an awful piece of Journalism, badly informed uneducated garbage

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    This article needs a fair bit of tweaking to get right.

    For a start, as Barry said, it is not higher rate taxpayers alone who are affected - the author has missed the way the tax shifts tax brackets, even at 20%, or destroys benefits, personal allowance, child benefit, tax credits and even causes some 20% payers to become 45% payers.

    The author also needs to know that even the government’s conservative estimate of ‘1 in 5 affected’ means 425,000 landlords facing difficult choices. In other words, in the region of 1-2m tenants as a minimum must face the knock-on effects of higher rents or evictions. If you believe in the Pareto principle, this 20% of landlords, as portfolio holders, will cause 80% of the damage.

    Some surviving landlords will adapt their game, but a whole load more won’t. We are already seeing the effects of this (rental demand up 18%, supply down 8%). A perfect storm is brewing.

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    He is talking his own book as an estate agent, certainly not a n investment professional. I would not touch buy to let in London, the returns are way too low and transaction costs too high, I can get 8 to 10% on other investments that are not so vulnerable to higher interest rates.

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    depends how you go about it and what you want to achieve, if you are having to borrow heavily then forget it, it's not for you. for me it was a long term cash investment to provide a pension, i bought slowly, and as i could afford it over the past 30yrs, and am still buying as i have the spare cash, has worked really well for me.


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