Close-up and side view of classical Georgian buildings in London, England, UK.
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LONDON — London homeowners are selling their rental properties at a record pace as planned tax increases by Britain's Labour government add further pressure to the once-lucrative investment sector.
Almost a third (29%) of homes currently for sale in the capital were previously rented, data published on Thursday by property portal Rightmove shows.
The rise reflects a broader uptick in rental property sales across the UK, where 18% of all listings nationwide were previously rented, according to Rightmove.
Rightmove said it was not yet clear that the figures indicated a “mass exodus” of landlords, but rather a gradual decline in the attractiveness of the buy-to-let sector. The five-year average of properties for sale that had been rented was 14%, while the proportion of properties that had been rented on the market in 2010 was 8%, Rightmove said.
He stressed that he expected tax increases in Finance Minister Rachel Reeve's October 30 Autumn Statement, including a possible rise in Capital Gains Tax (CGT), to become a “potential driver” of rising sales.
Prime Minister Keir Starmer has already warned that the October budget would be “painful” after the government said it discovered a £22 billion ($29 billion) hole in the public finances when it took office in July.
Reeves has refused to be pressed on the content of her spending plan, telling CNBC in July that those issues are “appropriate for the budget.”
There has been speculation about possible tax increases, including an equalisation of capital gains tax, which would bring it in line with the tiered rates at which income tax is levied. Currently, owners of buy-to-let properties have to pay a flat rate (18% for basic rate taxpayers and 28% for higher rate taxpayers) on the sale of their property.
Marc von Grundherr, director of London-based estate agents Benham and Reeves, said the potential equalisation of CGT was “of course” a concern for many landlords.
“If the Labour government goes ahead with this measure, it could mean a significant increase in taxes paid by the average homeowner when the time comes to leave the sector,” he said.
“This would be another blow to those providing the vital housing stock urgently needed in the rental sector, following a series of legislative changes already introduced in recent years which have affected profitability.”
The UK buy-to-let market, once a key area for wealth creation, has come under pressure in recent years, given the repeal of several incentives, including Tax relief for real estate investorsThe recent cost of living crisis and higher interest rates have also reduced affordability for homeowners, and the number of new buy-to-let mortgage approvals has shrinking in 2023 for the first time since they were introduced almost three decades ago.
The stock of investment property and second homes is now estimated to be down 8.7% compared with three years ago, according to Savills.
This comes amid a broad housing market slowdown that is now experiencing some relief. Lower borrowing costs following the Bank of England's rate cut in August have sparked a boom in home-buying activity.
According to Rightmove, the total number of new properties on the market is currently up 14% compared to 2023.
Rightmove is emerging as a potential takeover target for Rupert Murdoch-owned property firm REA Group, which said on Monday it saw growth opportunities in the UK market. However, Rightmove property expert Tim Bannister said the housing market recovery may not be felt across the board and warned that further restrictions on buy-to-let investors could exacerbate existing affordability issues in the rental market.
“A healthy private rental sector needs investment from landlords to offer tenants a good choice of housing,” he said.
“We have seen in recent years how the imbalance between supply and demand can contribute to rising rents, so there is concern that if landlords are not incentivised to stay in the rental sector rather than leave it, it will be tenants who pay the price,” he added.