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13 Jan 2020

Should you sell your buy-to-let property in 2020?

A quarter of landlords look to cut their portfolios as tax changes bite

With 2020 set to be another difficult year for buy-to-let landlords, some investors are already preparing their exit strategies - but is now really the time to cut your losses?

A new report has found that some landlords are considering selling at least one property this year, ahead of further changes to mortgage interest tax relief and an overhaul of eviction rules.

Here, we explain your options if you're looking to sell up, and offer advice on whether refinancing your portfolio might be a smarter move in the short term.

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Landlords set to sell up in 2020

A survey of 800 landlords by the insurer Simply Business has found that a quarter of investors are looking to sell at least one property this year.

The landlords in question cited tax relief changes and government licensing reforms as the main reasons to trim their portfolios.

A third said they had seen their rental yields drop in 2019, while one in four said they expected yields to fall in 2020, painting a bleak picture for embattled investors.

Selling a buy-to-let property: things to consider

If you decide to sell up, you'll need to prepare an exit strategy and ensure you time your sale carefully to avoid any significant financial ramifications.

Tenanted vs vacant

The first thing you'll need to decide is whether you want to sell your property as tenanted or vacant.

  • Tenanted properties:a property with existing tenants can attract professional investors looking for a home that can bring in income from day one. Selling to an investor rather than an owner-occupier will allow you to conduct a chain-free sale, but you'll be limiting your prospective pool of buyers and will need to deal with transferring the tenancy contracts to the new owner.
  • Vacant properties:a vacant property will attract a bigger audience on the open market, but there are some drawbacks. First of all, you'll need to wait until the tenancy agreement expires to reclaim the property and you won't be bringing in any rental income during the 'void' period before a sale. You may also need to spruce up the property before putting it on the market.

The cost of selling up

Next, it's time to think about the financial implications of selling up.

Buy-to-let properties are subject to capital gains tax. In the current tax year, capital gains tax kicks in after the first £12,000 of profits (or £24,000 for couples who jointly own the property).

Above this threshold, basic-rate taxpayers will pay 18% on their property gains, while higher and additional-rate taxpayers must pay 28%.

You'll also need to time your sale to avoid any additional mortgage costs. For example, if you've got several years to run on a long-term fixed-rate mortgage, you might need to pay early repayment charges if you sell up.

Could you remortgage instead?

If you're not dead-set on selling, you could rescue your buy-to-let profits by refinancing your portfolio through remortgaging.

The most recent data from UK Finance shows that in October 2019, around £2.7bn was lent to landlords remortgaging, compared with just £1bn for those buying new investment properties.

And there's no doubt that now is a great time to secure a good deal on a buy-to-let mortgage, with average rates dropping to just 3% this month, compared with 3.3% a year ago.

If you're considering refinancing, it can make sense to take advice from a whole-of-market mortgage broker, who can find you the right deal based on your specific circumstances.

Is there any value in expanding your portfolio?

The research by Simply Business found that eight in 10 landlords aren't planning on expanding their portfolios in 2020, but there are bargains out there for the select few willing to take a calculated gamble.

There's no denying that the property market has stagnated over the past year. Indeed, the most recent Land Registry House Price Index showed that prices fell by 0.7% month-on-month in October, and increased by just 0.8% year-on-year.

A quiet market with fewer people buying can be good news for those looking for a cut-price deal, but at a time of flat prices and stretched profits, you'll need to focus on bringing in a good rental yield.

If you're shopping around for a new property, ask the following questions:

  • Are house prices going up or down in the area?
  • How much are properties letting for in the area, and has this gone up or down?
  • What type of tenants does the area attract, what do these tenants look for, and is there a shortage of any specific types of property?
  • Is the property well within your budget?

Things landlords need to know in 2020

As we mentioned earlier, it's a complicated time to be a landlord, but we're here to help.

Our story on 15 things buy-to-let landlords need to know in 2020 provides a definitive guide to the key issues for investors this year, from tax changes to licensing rules.