Those choosing to flee or reduce their stake in the turbulent property market have been opting for quick sales, with one auction house reporting that 38% of its lots are from buy-to-let investors.
Here, Which? delves into why landlords are reassessing their portfolios, and explores the pros and cons of putting a property under the hammer.
Surge in landlords opting for auction sales
Data from estate agency Hamptons shows how landlords have driven up auction sales in recent months.
The share of rental homes in auction catalogues more than doubled from July 2022 to January 2023, rising from 13% to 29%. To put it into context, the highest percentage seen previously was 18% in December 2016.
Meanwhile, online property site My Auction has revealed that 38% of its lots are from buy-to-let investors who are keen to sell up.
Hamptons data also shows there has been a shift in the type of property going under the hammer. Houses now make up 76% of properties sold by investors at auction, outweighing the number of flats.
4 reasons why property auctions have become more popular
Stuart Collar-Brown, co-founder and director of My Auction, said: 'The interest rate rises have solidified and sped up the mass exodus of buy-to-let investors from the market.
'However, other contributing factors - such as the consistent changes in legislation and taxation surrounding landlords in this section of the market - have made it almost unviable for some landlords to retain their investment properties.'
1. High mortgage rates
While the figure has decreased from the high of 6.76% in November last year, it is far away from the average rate of 3.2% on offer just 12 months ago.
Landlords looking to buy or remortgage this year are therefore faced with much bigger costs than they have been accustomed to over the past decade.
The graph below shows how average BTL mortgage rates have changed over the past 10 years, using data from Moneyfacts.
Find out more:2. Capital gains tax allowance changes
The new financial year will bring with it a crucial tax change that will have a big impact on landlords.
The government is slashing the capital gains tax (CGT) allowance from £12,300 to £6,000. There's also set to be a further reduction in April 2024, when the allowance will be cut to just £3,000.
Landlords have to pay CGT on the profit they make when selling a buy-to-let property, which is charged at either 18% or 28%, depending on your income tax band.
With this change just weeks away, many landlords have turned to the auction houses in an effort to make a quick sale before the new CGT threshold comes into force.
Thanks to the quick-fire nature of auctions, sellers and buyers can rapidly exchange and complete on property purchases.
Find out more:3. Rent-hike freeze and eviction ban in Scotland
According to Hamptons, rental homes in Scotland currently account for a huge 41% of auction lots.
In an effort to safeguard tenants, an eviction ban was introduced last September and is set to remain for at least a year.
The eviction ban is coupled with a Scottish rent freeze, which leaves landlords unable to raise rents at a time when their finances are squeezed. The controversial measure - also introduced in September - is planned to be calmed in April, when the rent freeze will be turned into a rent cap.
Private landlords are set to be allowed to raise rents by a maximum of 3% – though can apply to increase this to 6% in special circumstances.
4. Bans on no-fault evictions
Landlords will no longer being able to set blanket bans on families with children or those in receipt of benefits, and must also be more open to pet ownership among tenants. Notice periods for rent increases will double, and tenants will have stronger powers to challenge unjustified hikes.
The government hopes to bring in legislation some time in 2023.
Pros and cons of selling property at auction
While selling a property at auction can make for a quick and easy sale, there are pitfalls.
Below, we outline the advantages and disadvantages for those considering selling at an auction:
Pros
Quick paymentChain-freeSeller stays in control:Buyers love projectsCan cut your ties with a loss-making propertyCons
High auction feesIt might not be marketed well:No guarantee of a saleSale prices fluctuate:Find out moresource https://www.which.co.uk/news/article/pros-and-cons-of-property-auctions-aP9o29G2NLHS