Amateur landlords have fallen out of favour. Buy-to-let properties – once the darling of budding investors looking for stable, long-term returns – have lost their shine through a series of changes to regulations and tax incentives. 

And despite the Tory leadership hopefuls’ silence on the issue, commentators have nevertheless pored over their track records to try and divine what either choice might mean for the buy-to-let industry. 

It’s time to face the reality that whoever reaches the top spot, rental properties are no longer the rock-solid investment opportunity they have been in the past. Not only have the political winds changed, but rising interest rates have created a macroeconomic environment that is not conducive to taking out mortgages against a rental investment. 

While there was a recent outpouring of grief from landlords sounding the death knell of the buy-to-let model following the Renters Reform Bill, it’s important to remember the changes didn’t happen overnight. There’s been a gradual build up of legislation for more than five years. 

In April 2016 a three percent stamp duty surcharge was introduced for anyone buying a property additional to their main residence – applying to second homes, holiday homes, and crucially, buy-to-lets. 

A year later mortgage tax relief on rental income was withdrawn in phases, essentially halving the tax advantages of owning a buy-to-let investment for higher-rate taxpayers. 

The Renters Reform Bill introduced the latest change: the scrapping of Section 21, or so-called ‘no fault’ evictions, whereby a landlord did not need to provide a reason to kick a tenant out. A positive step in protecting tenants’ rights, but one that also limits landlords’ options for quickly regaining control of their properties.

On the horizon is a rule change that will likely be the most financially painful for landlords. All new tenancies agreed after 2025 must be in a building with a minimum EPC rating of ‘C’. Someone with a portfolio of three buy-to-lets might be facing a bill of £30,000 to retrofit the properties to meet the new environmental standards. 

While many in the property industry have wondered aloud whether Truss or Sunak might possibly lower – or even scrap – stamp duty land tax, the political winds certainly aren’t blowing in that direction. Despite both contenders having promised tax cuts – at different times – these have focused on corporation tax and national insurance. 

In fact, Team Truss’ economic advisor Patrick Minford has argued that immediate tax cuts would likely see interest rates rise to seven percent – and that this is something to be welcomed. I’m not sure many with buy-to-let mortgages would agree. 

Making property investment easier is not on the agenda for either candidate. The Conservative Party has a near-institutionalised mission to get more people on the housing ladder. And given the experience of reducing stamp duty during the pandemic, where according to Nationwide house prices have since risen by more than 20 percent in a buying frenzy, hoisting the ladder even further away from hopeful buyers is not high up the agenda. 

Going easy on second-home-owners is also political kryptonite during a cost of living crisis where many are struggling to meet even their basic needs. 

Not only are buy-to-lets becoming politically passé, but a high-inflation, high-interest rate environment will put people off taking on large debts to fund property investment. The era of cheap money is over, making buy-to-let investments distinctly less attractive. Indeed, many in the property industry have argued convincingly that market fundamentals – not government policy – are more important to the sector. 

So it doesn’t look good for buy-to-let landlords, regardless of who wins the race. Thankfully, house prices are still sky-high, so those who have built up significant equity can still capitalise on their investments. And there are plenty more effective routes to get inflation-beating returns. My advice to buy-to-let landlords? Sell now – and fast. 

* Robin Paterson is a partner in UPSTIX *