Rent or Buy equation

devils_advocate

I don't disagree with you, but there is another reason why landlords may hang in there, even if they are not too confident of house prices going up, namely CGT. If a property was bought say 10 years ago, a sale now could easily generate a Capital Gains Tax bill of around 25% of the sale proceeds.

It's an old adage, but true nevertheless, that you should never let the tax tail wag the investment dog. Another way to look at it is that 60% of something is better than 100% of nothing.

Pal

I don't disagree with you, but there is another reason why landlords may hang in there, even if they are not too confident of house prices going up, namely CGT. If a property was bought say 10 years ago, a sale now could easily generate a Capital Gains Tax bill of around 25% of the sale proceeds.

devils_advocate wrote:

It's an old adage, but true nevertheless, that you should never let the tax tail wag the investment dog. Another way to look at it is that 60% of something is better than 100% of nothing.

Totally agree with devil's advocate. (That sentence that makes very little sense when you think about it. )

The capital gains tax arguement is largely irrelevant, and should never drive an investment decision. The point at which a professional landlord should sell is when they can earn a similar amount of money by investing the profit they have made (after tax and expenses) in something less risky or more likely to increase in value over their chosen time horizon. Based on the current value of properties in my area, there are many landlords who should now be looking at doing this, given current prices and rental yields. From a financial point of view, they would be better off selling and sticking the post tax profit in bonds or a cash account.

This is actually the major risk for renters at the moment. That their landlord cottons on to the fact that they can get more money for less hassle by selling.

Thankfully, at the moment the market is still full of BTL amateurs who clearly don't understand this. I sold my flat in December to a smalltime BTL landlord who quite clearly didn't know what he was doing. I looked into renting it out myself before I sold, and it was clear that I would be losing about £150 a month by doing so.

I am looking forward to repurchasing the flat off him at a lower price after he has gone bankrupt.