Selling Your Portfolio Under Financial Pressure
Higher borrowing costs, tax changes and rising running costs have reduced the returns on many buy-to-let portfolios. Understanding your position is the first step.
Over the past decade, a series of tax changes, higher interest rates and rising costs have changed the economics of buy-to-let – particularly for landlords with mortgaged portfolios held in their own names. Many landlords find that their net returns are lower than they were, and some are now subsidising their portfolios from other income.
For landlords in this position, the question is whether the capital tied up in the portfolio is still doing what they need it to. For some, the answer is to restructure or hold on; for others, an orderly sale of some or all of the properties makes more sense.
This page sets out the main financial pressures facing landlords and the questions worth asking before deciding to sell. It is general information, not financial or tax advice.
The Financial Pressures Facing Landlords
Section 24: Mortgage Interest Relief
Landlords who own residential property in their own names can no longer deduct mortgage interest from rental income when working out their taxable profit. Instead, they receive a tax credit at the basic rate. This restriction is commonly called Section 24.
For higher-rate and additional-rate taxpayers with significant borrowing, this can mean paying more tax on the same rental income than before, and in some cases a tax bill that is high relative to the cash the portfolio actually produces. The effect depends on your income and borrowing, so ask your accountant to show you the figures for your own position.
Mortgage Costs
Many landlords fixed their mortgages when interest rates were very low. As those deals end, refinancing at higher rates can sharply increase monthly costs – turning a surplus into a shortfall where rents have not kept pace.
Buy-to-let lenders also assess rental cover when you refinance, so some landlords find it harder to secure the products they want without reducing their borrowing. A mortgage broker can explain what is available for your portfolio.
Rising Operating Costs
Running costs have risen across many categories, including insurance, repairs and maintenance. Leasehold properties may also carry service charges and ground rent. Safety and compliance work – gas, electrical, fire safety and more – is not optional, and adds to the fixed cost of holding each property.
Void Periods & Arrears
In a tight financial position, even a short void period – a property empty between tenancies – can be costly. Mortgage payments, insurance and council tax continue whether or not the property is producing income. For landlords already operating on thin margins, a single void can push a portfolio into deficit. Rent arrears, even when eventually recovered, create similar cash-flow problems.
Reviewing Whether to Hold or Sell
Reviewing your figures with your accountant and lender will show whether holding or selling suits you. PSC can explain what a sale might involve.
Frequently Asked Questions
Section 24 is the common name for the restriction on mortgage interest relief for landlords who own residential property in their own names. Instead of deducting mortgage interest from rental income when working out their taxable profit, they receive a basic-rate tax credit. For higher-rate and additional-rate taxpayers, this has increased the tax payable on rental income. Tax and legal treatment depends on your circumstances. Speak to a qualified accountant or solicitor before acting.
Yes. A portfolio that is currently loss-making can still be sold. Buyers will assess each property on its own merits, including the rent, condition and tenancy position. Price depends on the properties, tenancies, condition and the buyer's funding; we will explain how any offer compares with open-market evidence.
Void periods – when a property is empty between tenancies – mean that mortgage payments, insurance and other costs continue with no rent coming in. Many investor buyers look for let properties, so selling with tenants in place is often possible. Whether to relet an empty property before selling is something we can discuss with you, as it can affect buyer interest.
Mortgages are normally repaid from the sale proceeds at completion. If the sale price would not be enough to repay the mortgage, the lender's agreement is needed before the sale can complete. Speak to your lender and to an independent adviser as early as possible. We can explain how a sale works and give you an indicative market view, but we do not advise on or negotiate your borrowing.
Alternatives may include refinancing, selling only some properties, changing how the portfolio is managed or reviewing rents within the law. Each has costs and consequences, and some – such as changing how the properties are owned – can have significant tax implications. Speak to a qualified accountant, solicitor or independent financial adviser before deciding. We are happy to discuss whether a sale fits your circumstances, without obligation.
Get a Clearer Picture of Your Position
A portfolio appraisal gives you an indicative market view of your properties to discuss with your accountant and financial adviser. It is a desktop market appraisal, not a RICS Red Book valuation, and there is no obligation to proceed.
Request a Portfolio Appraisal Call 01952 433 399We handle your information discreetly.