October 3, 2024 1:38 pm

Insert Lead Generation
Nikka Sulton

New figures from Zoopla show that the property market is seeing a noticeable shift, with the number of homes up for sale increasing by 12%. A significant portion of these properties—around 32%—are ‘chain-free’, which often indicates they are investment properties being sold without the need for a linked purchase. This could suggest that many landlords are choosing to sell off their portfolios, especially as the financial landscape for property investment becomes more challenging.

The data also reveals that 13% of the homes currently listed were previously rented out, further indicating a possible exodus of landlords from the buy-to-let market. This is particularly evident in regions like coastal and rural areas, which have seen a sharp increase of 40% more homes for sale than the national average. The surge in listings may include second homes, which are also being placed on the market in response to changing tax laws and economic pressures.

The rise in properties for sale could be tied to broader market trends that impact both investors and homeowners. With increasing regulatory pressures on landlords, especially around tax changes and tenancy laws, many may be choosing to exit the rental market while demand is still high. This trend is being closely watched by industry experts, including those attending the National Landlord Investment Show, which highlights current opportunities in the rental market, such as Houses in Multiple Occupation (HMOs). 

As more properties flood the market, it remains to be seen how this will affect house prices and buyer demand, particularly in investment-heavy regions. These changes are likely to reshape the dynamics between renters, landlords, and property investors in the coming months.

Buyer demand has surged by 26% in the past year, while sales have grown by 25%, with house prices seeing a modest rise of 0.7%. This increased activity is being driven by growing concerns over potential tax changes, especially among property owners looking to avoid hefty tax liabilities.

Sarah Coles, head of personal finance at Hargreaves Lansdown, points to a looming tax threat as the primary cause of the rush in property transactions. “Owners are falling over themselves to sell holiday homes and buy-to-let investment properties,” she says. “There’s real panic that changes in the upcoming Budget could impose a significant tax burden on their gains, making property investments far less attractive from a tax perspective.”

The anticipation of tax increases, possibly targeting capital gains on second homes or buy-to-let properties, is prompting many owners to act quickly. Property investors are particularly concerned that new rules could significantly reduce the profitability of their investments, especially as property tax reliefs have been slowly eroded over the years. 

This sense of urgency has led to a notable uptick in sales, with many looking to offload their properties before any new legislation comes into effect. For many sellers, the fear of being saddled with larger tax bills in the future outweighs any potential gains from holding onto their properties longer. As a result, this rush to sell could further drive up transaction volumes, particularly in areas with high concentrations of second homes or rental properties.

Sarah Coles describes the current situation as “yet another disappointment in the property investment journey.” Many investors are facing tax and legislative challenges they hadn’t anticipated when they first entered the market. For those who own buy-to-let properties or holiday homes, the financial pressures are mounting as the government introduces more changes.

The additional costs begin at the point of purchase, with buyers facing a stamp duty surcharge on second properties. As they continue, there’s tax on rental income to contend with, and recent rule changes mean that property owners can now offset less of their mortgage interest against their rental income. This has reduced the profitability of many investments. Moreover, frozen income tax thresholds are pushing more landlords into higher tax brackets, further increasing their liabilities.

For owners of holiday homes, while rental income may not be a concern, other financial obligations still apply. Council tax can become a significant expense, especially in areas where second homes are common and local authorities are increasing rates to deter property investors. These ongoing financial pressures are leading some owners to reassess whether property investment is still a viable strategy.

Popular locations for second-home ownership are preparing to double council tax on holiday homes next year. This change has already led to a noticeable increase in the number of properties for sale in certain areas. Truro, for example, has seen a 47% rise in available properties, while Torquay is up by 44%, and both Exeter and Lincoln have experienced a 41% increase. The upcoming tax changes appear to be driving many owners to offload their properties.

In addition to council tax hikes, sellers of second homes face Capital Gains Tax (CGT) on any profit from the sale, which is higher than the CGT on investments like stocks and shares. The forthcoming Budget could further increase this burden, potentially raising the tax rate on property gains or introducing rules that force property owners to pay CGT even on properties they leave behind after their death. This adds another layer of financial concern for second-home owners.

Sarah Coles points out that property investors don’t enjoy the same tax protection as those investing in stocks and shares. With shares, investors can use tax-efficient accounts like ISAs and pensions to shield gains from tax entirely. For investments outside of these tax wrappers, investors can manage their gains more strategically by using their annual CGT allowance of £3,000. They can also take advantage of the Bed and ISA process, which allows them to move assets into an ISA, protecting future gains from CGT. Unfortunately, property investors do not have these options, leaving them exposed to heavier tax bills.

But none of these things are possible when it comes to bricks and mortar property.

She concludes: “UK investors have typically been drawn to property. People feel it’s something they understand because they own their own home already. However, if you’re considering investing in property, the tax position alone should make you think twice.”

 

 

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