Should I Sell My Buy To Let?

Deciding whether to sell a buy-to-let property is a huge decision.

The property market has been a dependable source of income and wealth creation for decades, but changes in the last few years have left many wondering if it’s still worth it.

Rising mortgage rates, which have surged to levels not seen in over a decade and stricter government regulations, such as the phasing out of Section 21 evictions and the withdrawal of interest-rate relief, have added pressure on landlords, especially those with tight margins. Recent data suggests this is pushing more landlords into selling up.

But selling means giving up the potential for long-term rental income and capital growth. So, what should you do? Is it time to sell your buy-to-let?

The answer is, as always, it depends.

There’s a mix of personal circumstances, financial goals, and market conditions to consider. In this article, we’ll help you assess whether selling is the right move by exploring these key factors. Plus, we’ll provide a practical decision-making framework to guide you every step of the way.

By the end, you’ll have all you need to make the best choice for you.

What To Consider Before Selling A Buy-To-Let?

Personal Circumstances

Before making any decisions, take a step back and consider your personal circumstances.

Start by looking at how your buy-to-let property fits into your overall financial picture. Consider:

• Cash Flow: Are you still generating a positive rental income after mortgage payments, letting and maintenance costs, and taxes?
• Outstanding Debts: Do you have other financial commitments that could benefit from the equity locked in your property?
• Opportunity Cost: Would the funds from a sale allow you to invest in opportunities with better returns or reduced risk?

Next, if the responsibilities of being a landlord outweigh the rewards, it might be time to consider selling. So, ask yourself how managing your property aligns with your current lifestyle:

• Are you spending more time than you’d like on tenant issues, repairs, or compliance with new regulations?
• Are you looking to retire, change careers, or focus on other pursuits that demand your time and energy?

Finally, selling a buy-to-let property can trigger significant tax consequences. For example, you’ll need to pay Capital Gains Tax (CGT) on any profit from the sale of your property, if it exceeds the annual allowance of £3,000. In the UK, higher-rate taxpayers pay 24% on gains from residential property, while basic-rate taxpayers pay 18% (see the CGT rates on gov.uk).

At the end of this process, you’ll have a good idea of where you stand personally. Now, you need to take another, bigger step back…

The Property Market & Economic Environment

The broader property market and economic landscape are a major consideration.

Let’s start with current market conditions:

• Property Prices: What’s the general trend of property prices in the local area? If they’re growing, is it worth hanging onto? Do you know how much the property is currently worth, and would you be comfortable selling for that much? Is there anything happening in the local area that could cause your property value to change over the next few years?
• Rental Market Trends: High tenant demand can make holding onto your buy-to-let more appealing as you’re less likely to have void periods and can increase rents. However, if local rental demand is declining or rents are stagnating, it could be a good time to exit.

And what about those pesky mortgage rates?

Over the past few years, rates have risen sharply. Many landlords have found their mortgage interest payments increasing by hundreds of pounds per month, squeezing profit margins for those on variable or expiring fixed-rate deals.

A natural reaction to that is to sell up.

But there’s the wider economic environment to consider. While it’s expected that interest rates will not return to the ultra-low levels of the mid-2010s, they’ll likely find a middle ground. Central banks around the world, including the Bank of England, have started to cut rates and lenders are following suit.

So, if the only reason you’re considering selling is due to the rise in mortgage interest costs, then you may want to hold for another year and re-evaluate.

But of course, property market conditions and interest rates aren’t the only macro-factors. There’s also the legislative environment. And there have been significant changes in recent years affecting buy-to-let owners:

• Section 24 and Taxation: The phased removal of mortgage interest relief (under Section 24) has increased tax bills for landlords who own their property personally.
• Energy Efficiency Standards: The government requires properties to meet an Energy Performance Certificate (EPC) rating of “C” by 2030. Retrofitting your buy-to-let to comply could be costly.
• Renters’ Reform: The abolition of Section 21 evictions as part of the Renters’ Reform Bill will make it harder to regain possession of your property without a valid reason. While it protects tenants, it could increase the risks and challenges for landlords (and means you need to be more careful about choosing a tenant).

Should You Sell Your Buy-To-Let?

Ultimately, we can’t tell you whether to sell or not. But, if you’ve followed our advice above and taken the time to consider all the factors involved with selling a buy-to-let, then you’re ready to make an informed decision.

It might help to use a scoring system based on the factors we’ve discussed to guide your decision. So, with that in mind, we’ve created a simple table for you to fill in below:

Buy-To-Let Decision Checklist

Answer Yes or No to the following questions. At the end, count the number of each response:

• If you answer Yes to most questions: Holding onto your property might make more sense.
• If you answer No to most questions: Selling your property could be the better option.

The Pros and Cons of Selling

Pros of Selling

1. Unlock Equity: Selling allows you to access the capital tied up in your property, which you can use to reinvest in higher-yield opportunities, pay off debts, or fund personal goals.
2. Reduce Risk: Exiting the market shields you from potential downturns in property prices or rental demand.
3. Simplify Your Life: Letting go of a buy-to-let property reduces the administrative and regulatory burden.
4. Capitalise On High Prices: If property prices in your area are at a peak, selling now could help you maximise your returns.

Cons of Selling

1. No Rental Income: A well-performing buy-to-let property provides a stable source of income, which you’ll lose if you sell.
2. No Future Gains: If property values or rental demand grow in the coming years, you may regret selling too soon.
3. High Transaction Costs: Selling incurs expenses such as estate agent fees, legal costs, and Capital Gains Tax, which can reduce your net profit.
4. Reinvestment Risks: Selling may expose you to new risks if you reinvest in unfamiliar markets or assets.

Alternatives To Selling

As you can see, there are pros and cons to selling your buy-to-let. It’s not a clear-cut decision for any landlord, so perhaps it would be useful to consider some alternative options first.

You never know. You might be able to address your challenges without letting go of your investment.

1. Remortgaging

If rising mortgage rates are impacting your cash flow, consider remortgaging to a better deal. A fixed-rate mortgage, for example, can provide greater stability and predictability.

2. Outsourcing Management

If managing tenants, repairs, or compliance is overwhelming, hiring a property management company can take the pressure off. They handle day-to-day responsibilities, allowing you to enjoy the benefits of ownership without the hassle.

3. Diversifying Your Property Portfolio

Instead of exiting the property market outright, consider if there are changes you can make to your portfolio that better suit your goals and needs. For example, if rental yields are too low to make a profit, then you could sell your underperforming properties but reinvest in higher-yield opportunities – for example, HMOs (Houses in Multiple Occupation) or student accommodation.

Conclusion

In many ways, it’s been a tough time for buy-to-let landlords over the last few years. We see more and more carefully deciding on their next steps in the market, and considering whether they should sell up.

But it’s not all doom and gloom. In fact, there are incredible buy-to-let opportunities out there, if you know where to look.

So while we can’t make a decision for you, hopefully, we’ve given you the framework to do so yourself. Make sure to complete the Decision Checklist – it’s a great way of getting a quick insight into your thinking.

Then, we recommend speaking to a professional, such as an accountant, financial advisor, or property consultant. They can help you avoid costly mistakes and identify opportunities you may not have considered.

But, more than anything, don’t rush (unless you absolutely have to). Think long-term and make sure your decision matches up with your broader financial and lifestyle goals.

If you need additional support, we’re always here for a chat. We’re a property investment company, based in London and Dubai. Get in touch today to discuss your goals and explore your options.