By Elena Siniscalco
We all know these are not great times for the housing market: rents are extortionately high, especially in the capital, mortgage rates are a constant headache, and many see their dream of buying their first property slip away as the cost-of-living crisis eats away at their savings.
Against this gloomy backdrop, buy-to-let investors in London are selling up at the fastest rate in the country, according to research by Zoopla. During the first three months of the year, 26 per cent of the homes for sale were previously let out in the capital, compared with 11 per cent across the rest of the country.
Buy-to-let investors are leaving the market, and they’re doing it quickly. The reason is to be found in tax changes that don’t make it very profitable for them to be on the market at the moment.
But how punitive are these taxes? The main change regards mortgage interest rates. Since 2020, landlords – aside from those who have properties in a limited company – can deduct 20 per cent of their mortgage interest costs when they pay taxes.
Great, you’d think? Well, not really, given that before 2017, they could deduct the entirety of their interest costs. This is a big change, and it means they pay the same in tax regardless of the state of mortgage interest rates.
Mortgage rates were fairly low in recent years, but have gone up and up as a result of inflation. So many landlords are selling not because they think it’s a particularly good moment to do so, but because it makes more sense financially to get rid of a very expensive property.
This is particularly acute in London because rental yields are much lower than anywhere else in the country. Rental yields are the measure of the profitability of a property against the original investment. They’re high in cities where rental prices are strong, but property prices are below the national average. Because prices are so high in London, they tend to be a lot lower.
Mortgage rates should go down over the course of the year, even if interest rates go up. They began falling last autumn, and have stayed on that course since. Yet it will take some time before they stabilise, and in the meantime buy-to-let landlords are clearly feeling the pinch.
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