Realised losses on residential property investments increased by 32% in the latest tax year, reaching £1.15 billion as landlords faced pressure from weaker house prices, higher borrowing costs and changes to rental legislation.
HMRC figures obtained by Bowmore Wealth Group show that losses reported by taxpayers disposing of residential investment properties rose from £870 million in the previous tax year.
The figures cover losses crystallised when properties were sold, rather than unrealised falls in value. They also exclude profits made by other investors, meaning they do not represent the overall financial performance of the buy-to-let market.
Bowmore suggested that the increase could reflect landlords deciding to dispose of properties despite making a loss, with some potentially responding to the introduction of the Renters’ Rights Act.
The findings come against a backdrop of subdued house price growth. According to the Lloyds House Price Index for September, average UK property prices were unchanged over the preceding 12 months, while London recorded a decline of 2.2%.
Inflation has also eroded the real value of residential property investments, while higher mortgage costs and expenditure on maintaining rental homes have put pressure on landlords’ net returns.
LANDLORDS REASSESS INVESTMENT RETURNS
David Floyd, head of private clients at Bowmore Financial Planning, suggested that some buy-to-let investors were reconsidering their exposure to residential property in favour of other asset classes.
He said: “Buy-to-let 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 yields.
“The Renters Rights Act may have also prompted buy-to-let investors to sell up even if it means taking a loss.”
The legislation introduces changes to the private rented sector, including reforms affecting possession proceedings and rent increases. Bowmore believes the prospect of additional regulatory obligations may have influenced some landlords’ decisions to sell.
However, the HMRC figures do not establish how many disposals were prompted by legislative changes or whether the increase in reported losses reflects a broader rise in landlord exits.
Floyd also pointed to the costs and responsibilities associated with managing rental properties as factors affecting investment decisions.
He said: “A lot of buy-to-let investors found that the administrative burden of being a landlord, as opposed to being a stock market investor, was surprisingly high.
“That administrative burden and the costs of maintaining the stock left buy-to-let investors with net yields that were fairly low and were flattered by house price inflation. 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.”
The £1.15 billion total highlights the scale of losses being realised by some residential property investors, although the data does not show the number of transactions involved or the proportion of landlords selling at a profit.
