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Upcoming tax changes and government reforms are set to reshape the real estate lettings market. With potential adjustments like an increase in Capital Gains Tax (CGT) and the introduction of the Renters' Reform Bill (RRB), both landlords and tenants may face new challenges. Industry experts have analyzed how these anticipated changes might influence the buy-to-let sector.
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Capital Gains Tax Hikes May Prompt Landlord Sell-Offs
The proposed Capital Gains Tax increase could have a profound effect on smaller landlords, many of whom are reevaluating their positions in the real estate market. Edward Chelton Brown, Managing Director of Chelton Brown in Northampton, highlights that landlords with a limited number of properties, often just one or two, are considering selling due to the possible tax hike. This move could reduce the available rental stock in the short term. However, it might also pave the way for a market correction, allowing new investors to enter as property prices adjust.
In London, similar concerns are being echoed. Jason Werter, Managing Director of Living Residential in West Hampstead, notes that the potential tax increase is already pushing landlords to offload properties. While property owners holding assets through limited companies appear more stable, others may view the tax hike as a final push to exit the real estate market.
Smaller Real Estate Investors Face Tough Decisions, Larger Landlords Stay Cautious
While smaller landlords are feeling the pressure, those with more substantial portfolios are taking a more measured approach. With greater financial stability, these investors are waiting for further details on the government’s tax reforms before making any significant decisions. However, newer landlords with smaller portfolios—often between one and three properties—are reconsidering their investment strategies in light of both the proposed tax hikes and the impending rental legislation.
In Birmingham, Lisa Hunt, Residential Director at Maguire Jackson, notes that the city's real estate rental market remains strong, despite discussions about the Renters' Reform Bill. Demand for well-maintained rental properties in Birmingham city center continues to grow, driven in part by a rise in first-time buyers and the growth of institutional Build-to-Rent developments.
Fewer Rentals Could Push Rent Prices Higher
As some landlords exit the real estate lettings market, a potential reduction in available rental properties may lead to higher rents. Anita Lovell, Owner of Results Estate Agents in Rothwell, predicts that with fewer homes on the market, landlords could raise rental prices. This could also mean that landlords become more selective, preferring long-term tenants to avoid issues related to the eviction process, particularly with the court system already under strain.
Spencer Bullard, Managing Director of Abode Town & Country Properties in Royston, shares similar concerns, pointing out that 6% of his landlords have already started selling. Bullard warns that additional tax hikes could worsen an already tight supply situation, as higher immigration rates and diminishing returns for landlords may cause rents to rise further, leaving tenants with fewer affordable options.
Rental Reform Bill and Section 21 Abolition Add to Uncertainty
The proposed removal of Section 21 as part of the Renters' Reform Bill is another factor contributing to landlord uncertainty. Section 21 currently allows landlords to regain possession of their properties without providing a reason. Rachel Horton, Lettings Director at Richard Watkinson & Partners, notes that many landlords are worried about losing this ability, particularly as the rental legislation evolves.
Darren Moore, Head of Lettings at Bentons in the East Midlands, emphasises that while experienced landlords have adapted to previous changes, the elimination of Section 21 is causing significant concern. Moore advises landlords not to panic, noting that the real estate lettings market will continue to evolve and adapt. With the right guidance, landlords can navigate these changes successfully.
Regional Variations in Landlord Response to Reforms
Landlord responses to these reforms vary across regions. In the East Midlands, larger landlords remain optimistic, bolstered by rising rental demand and increasing rents. However, the lack of new buy-to-let investors may create a growing imbalance between supply and demand in some areas, leading to further rent hikes.
Meanwhile, cities like Birmingham and London are seeing more immediate shifts, with some landlords selling their properties. However, institutional investors are stepping in, particularly through Build-to-Rent projects, which may help to alleviate rental stock shortages in urban centres.
conclusion
As government reforms and tax changes approach, the real estate lettings market is facing a period of transition. Smaller landlords, particularly those with fewer properties, may choose to exit the market, while larger investors are likely to hold firm. Despite the uncertainty, the overall consensus is that rents are expected to rise, and rental stock could become scarcer.Both landlords and tenants will need to stay informed and adapt to these changes as the buy-to-let and real estate markets continue to evolve.
