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Landlords have bought 250k fewer homes since 2016 due to tax changes

Punitive tax changes have meant that landlords have bought a quarter of a million fewer homes in the past five years.

Since April 2016, landlords have bought around 700,000 homes across Britain. This is 250,000 – or 26 per cent – fewer than they would have if the tax regime had stayed the same, according to estate agent Hamptons International.

Five years ago, a 3 per cent stamp duty surcharge was introduced on second homes, which included buy-to-let properties. 

Buy-to-let: Fewer landlords have been buying properties since 2016 according to Hamptons

This was followed by the tapering of the tax relief landlords previously enjoyed on their mortgage interest from the 2017-18 tax year.

In total, Hamptons said there were 4.91million privately rented homes in Britain in 2010-21, accounting for 17.5 per cent of households.

Had these tax changes not been introduced, it said there could now be 5.16million rented homes in Britain today making up 18.4 per cent of households.

Back in 2015 landlords purchased 16 per cent of homes in Britain, but by 2018 this figure fell to a low of 11 per cent.

Over the last year the lure of a stamp duty holiday in England has seen landlord purchases pick up marginally, to 13 per cent of sales.

However, 72 per cent of all rental homes in Britain today were bought before April 2016, suggesting there are fewer new landlords coming in to the market.

When there are fewer properties available, this often has the effect of pushing up rental prices, the Hamptons research shows. 

Across Britain rents rose 5.9 per cent annually in April according to Hamptons, the fastest rate since January 2015.

Hamptons’ data also suggests London landlords have been especially put off, though lower demand for renting in the capital since the start of the pandemic may also have contributed to this.

Rent rises: Tenants are paying more than they were a year ago in most areas of the UK

Rent rises: Tenants are paying more than they were a year ago in most areas of the UK 

In the capital, the share of homes bought by landlords fell from a high of 20 per cent in 2015 to 11 per cent during the first three months of 2021.

Landlords have purchased 61,300 homes in London since 2016, but it said this number would have been 103,300 or 69 per cent more homes had the tax changes not been introduced.

This drop-off in new investment means 81 per cent of all rental homes in the capital today were bought before April 2016.

This was compared to just 65 per cent in the North West, where landlords can buy properties for less and generally make a better return.

Rents rocket up across Britain, but fall in inner London 

The 5.9 per cent annual rent rise in Britain as a whole was driven down by falls in London.

Rents fell by a huge 20.4 per cent in inner London between April 2020 and April 2021 to £2,103, though in outer London they increased by 3.4 per cent to £1,560.

Excluding London, rents increased by 10.4 per cent year-on-year – the first time since the index began in 2012 that average growth rates outside the capital have hit double digits.

Capital loss: With the exception of London, rents have increased in every UK region this year

Capital loss: With the exception of London, rents have increased in every UK region this year

The South West saw faster rental growth than anywhere else in the country, with prices up 11.3 per cent on the same time last year.

Rental growth remains linked to an unprecedented fall in the number of rental homes on the market. 

There were 45 per cent fewer homes available to let in April 2021 than in April 2019, with half of regions recording falls of 50 per cent or more.

As with rental growth, the South West topped the stock shortage league with 62 per cent fewer homes to rent than at the same time in 2019. London recorded the smallest fall of 20 per cent.

Rental stock in cities was down 24 per cent over the same period, while in country locations it fell by 65 per cent – perhaps reflecting people’s desire to move to more rural locations during the pandemic.

Aneisha Beveridge, head of research at Hamptons, said: ‘The tax changes introduced from 2016 onwards have undoubtedly taken the heat out of the buy-to-let market. Landlord purchases have dropped and consequently the rental sector is 7 per cent smaller than it was at its peak in 2017.

‘Even without the tax changes, we still think the rental sector would be slightly smaller today than it was in 2017.

‘Growth in the sector was slowing in the lead up to 2015 and the lure of Government support measures such as Help to Buy and the removal of stamp duty have seen more first-time buyers (would-be tenants) become homeowners.

‘But the longer-term impact of fewer rental homes is driving rental growth now, with rents rising six times faster than inflation.

‘Tenants face half the choice they had two years ago and each new instruction has brought a deluge of enquiries within hours of homes going onto the market.

‘While the current stamp duty holiday has boosted investor purchases a little, we are yet to see these flow into new instructions and improve choice for tenants.’

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