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Landlords Experience Significant Losses when Exiting the Property Market

Recent data indicates that UK landlords are now facing an average loss of £10,000 when disposing of their properties. This downturn in fortunes comes in the wake of rising interest rates and the forthcoming Renters Reform Bill, factors that have rendered some buy-to-let properties as non-lucrative. An eye-opening report from Cornerstone Tax 2020 shows that a mere 20% of landlords found their investment profitable this year. Alarmingly, an equal percentage admitted to diving into the landlord business without adequate knowledge, leading to significant financial setbacks.

Hamptons, a renowned estate agency, has offered some illuminating figures. In 2023, the average profit from buy-to-let properties was pegged at £94,800, marking a decline of 10.1% from the £105,300 profit seen the previous year. This dip means that landlords today are reaping similar benefits to those who sold their properties back in 2016, even with the substantial uptick in house prices in the intervening years. Hamptons’ regional analysis has further revealed that each region in England and Wales recorded reduced year-on-year profits for the first time post-pandemic. The North East’s landlords bore the brunt of this trend, witnessing a year-on-year drop of 15.7%.

The repercussions of these shifts are evident in the rental market. An estimated 35,000 buy-to-let landlords are moving away from their fixed-rate mortgages each month, confronting remortgaging interest rates exceeding 6%. Hamptons has further predicted that close to 100,000 landlords could exit the market annually over the next five years. A poignant detail in their analysis is that 6% of these landlords ended up selling their properties at a lower rate than their purchasing price, indicating that many might have missed out on the market’s pinnacle.

David Hannah, Chairman of Cornerstone Group International, shared his insights on the direction the UK rental market is taking:

“Concerningly, I fear that increasing mortgage costs will be the final straw for Britain’s landlords. They have now experienced their lowest profits since 2007 and face further government red tape. Our research shows that many landlords were not prepared to deal with the current obstacles facing the rental market as 1-in-5 say they became landlords without the sufficient knowledge needed and have lost thousands as a result.”