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Government Policies Lead to Decline in Landlord Portfolios

Recent research by London-based lettings and estate agent, Benham and Reeves, reveals a decline in landlords’ property portfolios. Their data indicates that since the past few Conservative governments introduced certain policies, there has been a nationwide reduction in stock.

The study analysed the variation in the size of property portfolios between Q1 of 2022 and the same period in 2023. The findings illustrate a 5.6% year-on-year reduction in portfolio sizes across England and Wales, with the average dropping from 9.1 to 8.6 properties. However, certain areas experienced steeper declines.

Notably, Wales exhibited a significant reduction, with the average portfolio plummeting by 42.9% (from 12.6 properties in 2022 to 7.2 in 2023). Within England, the East Midlands faced the steepest drop of 33.9%, decreasing from 11.8 to 7.8 properties. The North West also saw a major decline, by 17.0%, reducing the average from 10.6 to 8.8 properties.

Regions with traditionally lower house prices might be attracting newer investors with fewer properties, further bringing down the mean portfolio size.

The investment environment has deteriorated over time. Issues began with the introduction of a 3% stamp duty surcharge in 2016. However, the removal of mortgage income tax relief had a more profound effect, taxing landlords on revenue rather than profits. This change became particularly punitive with rising mortgage rates. The prior tax relief was substituted with a modest 20% tax credit.

Wales, which witnessed the largest decline in portfolios, introduced the Rented Homes Wales Legislation in June, extending the no-fault eviction notice period for tenants to six months. Additionally, the forecast for landlords appears grim. From next April, the personal Capital Gains Tax allowance for landlords selling properties will be slashed from £6,000 to £3,000. Moreover, landlords will face challenges like the abolition of Section 21 evictions and the obligation to upgrade properties to a minimum Energy Performance Certificate (EPC) level of C by 2028, a potential financial burden for those owning older properties.

Contrarily, the East of England has seen a surge in portfolio sizes, with a 43.8% year-on-year rise from 6.4 properties in Q1 2022 to 9.2 in Q1 2023. There were also modest growths in Yorkshire and the Humber, South East, and West Midlands. Six other regions experienced drops, with only slight reductions observed in the North East, London, and the South West.

Marc von Grundherr, Director of Benham and Reeves, expressed his concerns:

“It’s getting harder to be profitable as a landlord, and that impact is starting to show.

“Losing income tax relief had a big effect, while many investors are understandably worried about the upcoming changes to Capital Gains Tax, minimum EPC rules, and the elimination of Section 21 evictions.

“Declining portfolio sizes should act as a warning to the government. The tax landscape is unfairly balanced against landlords and unless the authorities want rental stock to continue falling in the years ahead, they may need to reverse some of these hostile policies which are driving professional landlords away.

However, there are alternative challenges associated with offloading buy-to-let portfolio properties at present. While many of our landlords are disgruntled due to rising mortgage costs, they understand the difficulties of the resale market in the current climate. As a result, they are choosing to keep hold of their current investments for the mid-term until market values strengthen.”