Residential landlords are abandoning ship as tax pressures squeeze the profitability of buy-to-let investments. Propertymark reports a surge in enquiries from landlords seeking to switch their focus to commercial property, where they perceive a less restrictive legislative framework.
The shift stems from years of policy changes that have incrementally eroded the viability of residential investments. Restrictions on mortgage interest relief and higher Stamp Duty Land Tax rates for additional properties have cooled investor appetite. Many portfolio landlords are reassessing their strategies, as the cumulative effect of these measures makes the residential sector less attractive.
Michael Sears, a member of the NAEA Commercial Propertymark Advisory Panel, notes that investors prefer commercial property due to its less stringent regulatory environment. Those making the transition typically face higher entry costs and lower loan-to-value lending options, but are drawn by reduced regulatory burdens.
Steve Lane highlighted growing demand for guidance from new investors considering a pivot towards commercial property. Many require in-depth advice on tax and regulatory structures, including variations in borrowing ratios, tax liabilities, and ongoing compliance obligations.
A continued exodus of landlords could lead to upward pressure on rental prices as the supply of privately rented homes decreases. Conversely, reduced demand for residential investment properties might stabilise or reduce house price growth in some areas, although this effect is likely to be regionalised.