Around one in four landlords are considering selling at least one property in 2020, a recent survey by insurers, Simply Business, has found. The reasons given were the changes in tax relief for buy to let properties, as well as licensing reforms.
April 2020 marks the final phasing in of the tax relief changes, first introduced by the government in 2017. Landlords claim they’ve seen yields drop as a result, and a quarter of them expect their yields to fall again in 2020. For landlords who are thinking about selling, there are various factors to consider.
Sell tenanted or vacant?
There are pros and cons to both options. If your property is vacant, you have a larger pool of potential buyers to attract, including owner-occupiers and developers. The downside is that you would need to wait until your current tenancy has expired, and you may also need to take time to prepare the property for sale. This would create a void period where you’d be missing out on rental income.
A tenanted property will attract professional investors who are looking to generate income from the property from the start. It has the advantage of a chain-free sale, and you’d be earning income right up until the transfer of ownership. A tenanted sale means that the tenancy contracts would need to be transferred to the new owner as well. Using a property inventory software app from providers such as https://inventorybase.co.uk/ makes the transfer a smoother experience for buyer, seller and tenants.
Costs of selling
BTL mortgages may come with early repayment charges, so it’s important to check the details on your mortgage and decide whether it’s the best time to sell. It’s also important to bear in mind that your sale will be subject to capital gains tax. If you’re a higher rate tax payer, you’ll be paying 28% of profits over £12,000.
An alternative to selling might be to remortgage your portfolio – it’s worth seeking advice from an independent mortgage broker to see whether you can improve your finances by finding a better interest rate. And it’s still worth considering expanding the portfolio, too. Depending on the area you’re buying in, the direction house prices are moving in and the type of tenants the properties may attract, it’s still possible to increase rental yield.