What’s Behind the Rise in Property Investors Selling at Auction?

More investor-owned properties have been going under the hammer than at any time since 2019. This trend could continue for a number of reasons, including legislation and tax changes and the squeeze on landlord’s returns. So, will this bring more properties to the auction market this year?

At the end of 2022, the number of buy-to-let properties being sold at auction increased by 10% compared to figures from the previous year, according to data from Auction House. This is happening as a growing number of landlords are selling their investment properties.

Tax changes

One of the biggest changes in recent years that have caused landlords to decide to sell up is Section 24. The government phased in this set of reforms from 2017 across four years, and it’s caused some landlords to have to pay more in tax. There is even a current petition with over 30,000 signatures urging the reversal of these changes.

Prior to 2017, landlords were able to deduct mortgage interest from their income tax. However, now they are only able to claim an income tax reduction equivalent to the basic rate tax relief on the finance costs of their rental properties.

There are also upcoming changes to Capital Gains Tax, which is charged on any profit made when selling or disposing of an asset. First announced at the 2022 Autumn Budget, changes to the allowance are being phased in from April 2023.

The current allowance for this tax is £12,300 and will be halved to £6,000 from this April. It’ll then be halved again to £3,000 starting in April 2024. This could mean an increased tax bill for landlords and second property owners planning to sell. So, investors are urged to act quickly if they want to sell before this change comes into effect.

With completion times on the open market taking up to six months and the growing risk of fall-throughs, an auction will likely be the best way to ensure a quicker and more secure sale before the current tax year ends.

Legislation changes

Increased regulatory burdens have also created a number of challenges for landlords, and more legislation changes are likely on the way. The scrapping of Section 21 evictions and cancellation of fixed-term tenancies, which is set to be written into law with the Renters Reform Bill, is causing concern among some landlords.

And with the potential of having to meet increased minimum energy efficiency standards as early as 2025, this is causing further worry for landlords with properties below the EPC rating of C. These uncertainties are leading a growing number of property investors to sell their properties before these changes come into effect.

Why investors are choosing auctions…

With so much change in the buy-to-let sector, property investors are using this as a time to consider whether staying in the space is right for them. And as more make the decision to sell, property investors are increasingly seeing the benefits of selling at auction.

Faster transactions, particularly with the looming Capital Gains Tax deadline and upcoming legislation changes, is one of the biggest advantages. It can also be a more convenient, efficient and secure way to sell.

Jeremy Prior, managing director of Auction House, comments: “There’s no escaping the fact that there are some incredibly challenging conditions out there. As a result, many investors are looking at their portfolios and reviewing the situation, and investors of all types recognise that if they need to adjust their stock the speediest and most certain way to do so is via auction.”