Higher tax bills are encouraging landlords to invest less in buy to let even though tenant demand for rental homes is high at rents are rising.
Since former Chancellor George Osborne made buying investment property more expensive by adding a 3% surcharge to stamp duty and slashing tax breaks for landlords with mortgages, landlords have spurned the market.
In the first half of 2018, investors spent £12.1 billion on 64,260 buy to let homes – a 30% drop on spending and homes purchased since the same period in 2015 when Osborne’s tax changes were announced.
According to data from property consultancy Hamptons International, the spend was the lowest by landlords since the middle of 2013, when the amount was £11.2 billion.
At the same time as landlords have stopped spending, rents have continued to increase, says the letting agent.
In September, the average UK rent stood at £980 a month – a year on year increase of 1.6%.
Aneisha Beveridge, head of research, Hamptons International, said: “The total value of homes purchased by landlords has fallen by over £5 billion in just three years. This is due to landlords buying fewer buy-to-lets and investors spending less on the homes they do buy.
“With two out of five London based landlords looking outside the capital to buy their investments in search of higher yields and lower stamp duty bills, the average price of a home bought as a buy-to-let has fallen by 7% since 2016.
London investment falls
“Rental growth continues to gradually pick up. Rents rose in every region for the first time since January. London rents returned to growth for the first time in four months, fuelled by a pickup in Inner London.”
The data also shows that nearly two-thirds of landlords based in London (61%) are buying homes to rent outside the capital.
This is an increase of 10% on last year and double the number (25%) buying outside the capital in 2012.
The number of buy to let properties purchased in London has fallen by 36% to just over 9,000 between the first six months of 2015 and the first half of 2018.