UK Landlords Sell Their Homes at Record Numbers. There are many reasons behind this trend. It is simply because they fear a hike in capital gains tax. According to Rightmove, which is a big property website, this is the highest number of landlords selling their homes since 2010. Let us look at it and try to find out why this matters.

What is Capital Gains Tax?

Before we dive deep, let’s understand what capital gains tax is. It is a situation when the government wants a part of someone’s earnings from selling a property. Capital gains tax, therefore, represents the amount of tax which the government wants to claim on selling a property and making a profit out of it. Right now, the tax rate can go up to 24%. However, there are rumors that it might increase up to 39% in the upcoming budget announcement scheduled for 30th October.

Landlords Are Selling Like Crazy!

According to Rightmove, by the end of September, 18% of homes sold were previously rented out-the highest percentage ever recorded! Of course, just 14 years ago, that figure was no more than 8%. In fact, just last year, it even reached 15%, but then dropped a bit for this year.

Why is this? Many owners believe that higher taxes will be bad for their profits. And if they think that they can sell their properties for a good price now, so be it – before the tax gets even higher.

At the same time, new regulations on the energy efficiency for the rental homes might be piling additional pressure upon them. The landlords are responsible for the compliance of the property to certain standards. This is very expensive. For this reason, the option of holding on to their rental homes is even less appealing to them.

Record High Rents for Remaining Landlords

As others cash in, landlords who are still renting them out are going home with more money than ever in their pockets. Mean rental prices for homes in Great Britain have hit record highs at £1,344 a month, excluding London, and at an astonishingly large £2,694 a month for London.

The Office for National Statistics also reported that rents in the private sector in the UK had increased by 8.4% over the past year to September. Average monthly rents have risen to £1,336 in England, to £760 in Wales, and to £973 in Scotland. Unfortunately, a figure wasn’t available for Northern Ireland where they said rises were 9.5%.

The Case of Tenants

Sarah Coles of the finance service Hargreaves Lansdown believes that fear of landlords leaving the market is the cause of higher rents. She said that tenants’ plight has worsened now: because fewer homes are available, they must battle competitively to see what’s left, thus increasing prices even higher.

Sarah noted, “As long as landlords are more interested in getting out than staying, renters are stuck in a vicious cycle of fighting over crumbs and then paying an awful lot for them.” That translates to the more rental home vendors who want out, the fewer rental homes will be left to choose from. Competition fuels higher price levels, rendering it even harder for renters to find a place to lay their heads in.

Why Do Landlords Get Out

In addition, higher taxes are something by which many landlords are being forced to sell. According to Sarah Coles, “Fears of changes to capital gains tax in the budget are driving plenty of sales.” Many landlords are nervous of thinking that if the tax goes up, or the rules in regard to property ownership, it might damage their investment further.

With these facts, property ownership already tends to be one of the least tax-efficient ways to invest in the UK. The possibility of these changes makes it even more challenging for landlords and encourages them to sell their homes now rather than face losses later.

What Next?

So, what’s the future story here? If landlords start selling for good, we might be in for one big shift in the rental market. This means we could see increased rents being charged because there are fewer homes to rent. This can become a problem with people who have already had difficulty finding places to live at affordable prices.

On the other hand, increasing capital gains tax would discourage more people from investing in rental properties. It may eventually lead to fewer built rental homes in the future, hence making the UK housing crisis even worse.