Over recent years, buy-to-let (BTL) investments have become less and less attractive. Our research shows that the number of BTL property purchases in the UK fell 25%, from 240,800 in 2022/23 to 192,100 in the year ended March 31, 2024.
What's driven this change?
This fall in BTL purchases has partly been driven by the sharp rise in interest rates on BTL mortgages but also by a series of tax measures introduced over the last few years. These changes have made BTL property investment less appealing from a tax standpoint.
The key changes include but are not limited to:
- Restrictions on mortgage interest deductions: Landlords can no longer deduct mortgage interest costs in full from their rental income, leading to higher tax bills.
- Reduced wear and tear allowances: Landlords now face limits on the expenses they can claim for the upkeep of their properties, which has further tightened margins.
- Cuts to Private Residence Relief: This change has increased the amount of Capital Gains Tax (CGT) landlords must pay when selling a property that was previously their main home.
- Additional 3% Stamp Duty Land Tax: The imposition of an extra 3% rate on the purchase of additional buy-to-let properties has added to the cost burden for potential landlords.
What to expect moving forward?
With the new Labour government signalling more renter-friendly legislation, such as putting restrictions on non-fault evictions, these concerns are likely to continue. Concerns that the new Government will increase CGT at the upcoming October Budget or add to the red tape for landlords is encouraging more landlords to exit the market, and fewer to buy.
There is, however, potential for change. If mortgage rates continue to fall, the dynamics of the BTL market could shift again. Since the onset of the COVID-19 pandemic, rental prices have steadily increased, and a reduction in financing costs could improve the investment outlook for landlords.
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