Buy-to-let losses crystallised on residential property sales rose 32% to £1.15bn in the last tax year, up from £870m, research by Bowmore Wealth Group shows.
HMRC data supplied to Bowmore captures buy-to-let losses that investors realised by selling, and excludes profits made by other sellers. Paper losses are likely to be far higher, the group says.
Bowmore says stagnating prices nationwide, and falls in key markets such as London, have hit investors. The Lloyds House Price Index for September shows UK prices flat over 12 months, while London prices dropped 2.2%.
Prices have also fallen in real terms, after inflation, as mortgage costs rise and landlords absorb the impact of the Renters’ Rights Act, according to Bowmore. The legislation makes it harder to remove a tenant who has defaulted on rent and harder for landlords to raise rents. Bowmore points to signs that investors sold up ahead of the Act.
“BTL investors are looking at the growth in global stock markets and the high yields on UK Government bonds and asking themselves if they should still be in an investment that has a relatively low net yield,” said David Floyd, head of private clients at Bowmore Financial Planning. “The Renters Rights Act may have also prompted BTL investors to sell up even if it means taking a loss.”
“A lot of BTL investors found that the administrative burden of being a landlord, as opposed to being a stock market investor, was surprisingly high,” he noted.
“That administrative burden and the costs of maintaining the stock left BTL investors with net yields that were fairly low and were flattered by house price inflation,” he said. “However, house prices have now stalled and the prices of many flats has fallen sharply.”
“The new Renters’ Rights Act added an extra level of jeopardy and risk into being a landlord,” he added.
