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6 May 2019

Landlords: should you sell your buy-to-let properties?

A quarter of landlords considering selling up in next 12 months

A quarter of landlords are looking to sell at least one property in the next 12 months, as taxation changes and government reforms continue to bite.

That's according to a survey by the Residential Landlords Association (RLA), which shows landlord confidence has dropped significantly ahead of the introduction of the tenancy fees ban next month.

But is property investment still worthwhile, or is now the time to sail off into the sunset? Here, we explain the pros and cons of selling, remortgaging and investing.

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Landlords losing confidence in buy-to-let

Landlord confidence in buy-to-let is at the lowest level since the RLA started its monthly survey in 2016, with a quarter of its 2,500 respondents saying they'll look to sell at least one property in the next year.

This comes as two regulatory changes threaten to impact the way landlords let their homes.

First of all, the tenant fees ban comes into force next month. From 1 June, letting agents will be banned from charging fees to tenants for things such as referencing, inventories and contracts, while deposits will be limited at five weeks' rent. This move is likely to result in higher bills for many landlords.

In addition, the government is consulting on overhauling the Section 21 eviction process, which allows landlords to evict tenants with as little as eight weeks' notice once their contract term has expired.

So, if you're facing mounting bills, and an uncertain market, what should you do? We outline some of your options below.

Option 1: Selling up - things you'll need to consider

If you've resolved to sell one or all of your buy-to-let properties, you'll need to think about the following things when preparing your exit strategy.

  • Selling a tenanted property: a tenanted property could be attractive to an experienced investor looking for a guaranteed yield, but there are plenty of bureaucratic hoops to jump through. Marketing your property to investors could allow you to conduct a chain-free sale, but by excluding owner-occupiers, you'll be cutting out a big section of prospective buyers.
  • Selling a vacant property: firstly, you'll need to deal with the administrative, and in some cases emotional, process of evicting your tenants. You might also need to spend some time sprucing up your property before placing it on the open market. You'll also face a loss of rental income while your property is for sale.
  • Capital gains tax implications: buy-to-let properties are subject to capital gains tax. While you can offset some costs, if your property has experienced a significant growth in value, you could be facing a big bill.
  • Mortgage implications:if you've taken out a fixed-rate mortgage (especially a longer-term deal) you might pay early repayment charges to pay it off. On a five-year fix, this can be as much as 5% of the balance.

Find out more:get the lowdown on selling up in our brand new guide on selling a buy-to-let property.

Option 2: Remortgaging - cheap buy-to-let rates

While some landlords are looking to sell up, others are taking advantage of attractive mortgage rates to refinance their portfolios.

The most recent data from UK Finance (based on lending in February) showed that while new buy-to-let mortgage lending was down 14.3% year-on-year, remortgaging was up by 4.5%, hitting £2.3bn.

And since then, buy-to-let mortgage rates have continued to drop. As you can see in the chart below, average rates on fixed and variable buy-to-let mortgages have fallen significantly over the last couple of months.

But what does this mean in practice? The table below shows the lowest initial rates landlords can enjoy on remortgaging deals at different loan-to-value (LTV) ratios.

Max LTVTwo-year fixThree-year fixFive-year fixTwo-year trackerTwo-year discount
60%1.47% (Barclays)1.79% (TSB)1.99% (Sainsbury's)1.39% (The Mortgage Works)1.7% (Principality)
65%1.49% (The Mortgage Works)2.05% (Coventry)2.09% (The Mortgage Works)1.39% (The Mortgage Works)1.74% (Nottingham)
75%1.69% (Sainsbury's)2.18% (Post Office)2.32% (Sainsbury's)1.69% (Santander)1.99% (Hinckley & Rugby)

Source: Moneyfacts. 3 May 2019. Remortgaging deals only.

As you can see, it's possible to get attractive rates of below 2% on both fixed and variable deals. If you're thinking of remortgaging, you'll should also take into account any upfront fees and the overall cost of borrowing before rushing in.

Option 3: Investing - making the most of property prices

Landlords looking to expand their portfolios could benefit from the current house-price lull.

The most recent Land Registry House Price Index showed that after months of stagnation, property prices fell by 0.6% month-on-month in February, while the annual increase was just 0.6%.

It goes without saying that property prices can vary dramatically by region, town, and even street, but generally speaking, a slow market could offer an opportunity for investors to grab a bargain.

With capital growth currently very low in most areas, you'll need to focus on the yield you could achieve by letting your property.

Research by the estate agency Hamptons International found that average yields crept up to 5.9% in the second half of 2018, with investors in the North of England enjoying yields of up to 11% in some towns.

When you're shopping around for a new property, here are five things to consider:

  • Research the local property market - are house prices going up or down?
  • Consider rental yields and any capital growth potential.
  • Find out what type of tenants the area attracts, and what they'll be looking for.
  • Always stick to your budget.
  • Don't let your heart rule your head - make an investment decision based on the facts.

Find out more: use our area comparison tool to see vital stats for the area you're considering buying in.