Increase in buy to let portfolio landlords looking for investment alternatives

An increasing number of landlords in the UK with significant property portfolios are looking into downsizing due to the tax, lending and legal changes that have been introduced in the buy to let sector, it is suggested.

More than ever are looking at other investments as buy to let becomes more profitable, according to Irwin Mitchell Private Wealth but the firm is warning that disposing of a buy to let portfolio is not as straightforward as many might think.

In recent months landlords have seen more stringent mortgage lending criteria announced, particularly for those with four or more properties, tax relief on buy to let mortgages is being reduced and they now face an extra 3% stamp duty when buying additional properties.

But the report points out that landlords with larger portfolios may find themselves with a Capital Gains Tax (CGT) bill due to a move by HMRC to crack down on landlords who do not declare all sources of income.

‘It’s understandable that landlords who have been hit with some difficult changes are now thinking of exiting the buy to let market in order to invest elsewhere. We’ve certainly seen an increase in enquires from landlords worried about the future market,’ said Jeremy Raj, partner and head of London Residential Property at Irwin Mitchell.

‘However, the CGT liability that will crystallise on each property sale must be factored in when weighing up whether it is best for landlords to divest of their property portfolio. Any restructuring of a portfolio should factor in the overall tax implications and a comparison of the costs of alternative investments, for which legal advice should be taken,’ he explained.

‘It is easy to overreact to the recent negative signals, but existing portfolios can continue to produce good income and capital growth, and in a low interest environment with significant geo-political uncertainties, many of the attractions of bricks and mortar remain,’ he added.

Meanwhile, separate research suggests that buy to let landlords aged over 55 could access almost £50 billion through equity release. According to a report from Retirement Advantage equity release could offer a financial boost at a time when landlords are seeing their income fall.

‘Tapping into property wealth won’t be right for every buy to let landlord, but the best way to find out is to adopt a holistic approach to finances and have an open conversation with a financial adviser. If only a proportion of landlords embrace equity release, it could lead to billions of pounds being freed up to support or even enhance their retirement,’ said Alice Watson, head of marketing at Retirement Advantage Equity Release.

‘We have spoken to advisers who believe that equity release for buy to let will particularly appeal to landlords with portfolios who want to make the most of their investments as their circumstances change later in life. Equity release can allow older landlords to raise capital without effecting their surplus income, and to borrow against properties at an age that few mainstream mortgage lenders would consider,’ she explained.