Landlords cut exposure as the policy stack thickens
Dan Pilley started buying rentals in 2004, when prices were climbing and tax perks were generous. At one stage he held 18 properties in and around Haverhill, about 50 miles northeast of London, but has sold down to three after measures from both Labour and Conservative governments eroded returns. As he put it, "I can do a lot better with my money elsewhere for a lot less hassle," and he has shifted into commercial property agreements with fewer maintenance demands.
That switch is not isolated. According to Simon Gammon, the managing partner at the mortgage broker Knight Frank Finance, governments have seen second homes and buy-to-let as convenient political targets to curb. His view now: unless a purchase offers very high rent yield or very low borrowing relative to the property's value, most deals do not add up, and "there are better investments out there nowadays."
New budget, tighter rules and thinner supply
In Wednesday's budget, John Healey set out that property income tax would go up by 4 percentage points starting April 2027. Depending on a landlord's tax band, rates would rise to 24%, 44% or 49%. It replaces the 2 percentage point hike that Rachel Reeves announced at last year's budget.
Over roughly the past decade, policy has also chipped away at the model: mortgage interest relief has been scaled back, stamp duty on second homes raised, rent increases limited, and other rental rules tightened in ways that lift costs. Although steps like the Renters' Rights Act strengthened protections for tenants, a shrinking pool of rentals can exert upward pressure on prices. This month, SpareRoom said the supply of rooms to rent was down by nearly 5% versus a year ago, and that seven of the UK's nine regions saw rents reach fresh highs.
Returns then vs now, and where money is going
Hamptons estimates that early buy-to-let investors have achieved an average total gain of 2,130% since 1996. More recently the tide has turned, with the S&P 500 outpacing residential property over the last five years as buy-to-let delivered 41%.
That shift is evident in individual portfolios. James Brand, a 53-year-old former investment banker who began buying in the 1990s and went full time in 2003, built up 14 houses across London and the Southeast and carried about £4 million in debt. After the Conservative government's 2015 changes to property relief, he sold properties to pay down buy-to-let mortgages and now lets out six homes. He said he is finding better outcomes "just sticking my money in ISAs," and contended that entering buy-to-let is, in most cases, no longer "economically viable." His blunt takeaway: "You might as well do anything else."
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The alternatives investors are weighing
Not everyone is sticking with bricks and mortar. David Little at Evelyn Partners said some property investors may prefer stocks or UK government bonds. Sarah Coles at AJ Bell said investors should first use ISA and pension allowances, and that couples can coordinate these, including paying into a non-working partner's pension.
Short-dated gilts can be tax efficient for higher and additional rate taxpayers who have used up other allowances. Coupon payments are subject to income tax, yet gilts purchased directly are exempt from capital gains tax, making the low-coupon bonds issued during the pandemic appealing since much of the return arrives as capital gains rather than income.
What this means for your portfolio
The bottom line: rising property taxes, tighter rules and a thinner rental pipeline explain why more landlords are exiting and reallocating. The long run was kind to early buy-to-let investors, but recent returns, policy shifts and funding costs are steering some capital toward ISAs, pensions, equities and gilts. If you hold property, the mix of cash flow, tax treatment and alternatives is the comparison that matters.
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