Many of Britain’s biggest buy-to-let landlords are planning to sell off their homes, blaming George Osborne for effectively raising their tax rate to more than 100%. Some warn interest rate rises will tip them into bankruptcy.

Ajay Ahuja, 43, who owns 200 properties – plus two Bentleys and his own 7,000 sq ft house in Cambridgeshire – says he has already begun to sell some of his homes: “Osborne is getting what he wants. He is forcing me to sell.”

The author of The Buy To Let Bible, which has sold more than 100,000 copies, Ahuja claims that planned changes to the taxation of buy to let to be phased in between 2017 and 2020 could leave him paying £1.20 in tax for every £1 he earns. In a second blow to landlords, the chancellor raised stamp duty on buy-to-let homes by 3% in the autumn statement, which will add £5,250 to the bill when buying a £175,000 property.

Last week the Bank of England threatened a clampdown on lending to landlords amid fears that a mass sell-off of buy-to-let properties could prompt a renewed financial crisis. In a report on the financial stability of the UK it warned that six out of 10 buy-to-let landlords could be vulnerable if interest rates rise by 3%.

This week Britain’s most controversial major landlord, Fergus Wilson, sold his property empire of around 900 homes in Kent for £250m, saying “the boom days are over” – although he reckons new investors can still make money.

Barclays has been the first major bank to respond to the changing landscape, demanding potential landlords prove that the rent they receive is equal to at least 135% of the mortgage cost, up from 125%. This shocked a mortgage market in which the 125% figure has been the norm for years. Coventry building society’s Godiva buy-to-let business raised its “stress test” for new applicants, while Virgin Money, currently top of the buy-to-let best-buy tables, said it is also reviewing its lending criteria.

In a statement Virgin Money said: “It is clear that policy makers are concerned about this market overheating, so as a consequence we will be reviewing our lending policy to ensure it remains appropriate for all our stakeholders.”

But the two biggest buy-to-let lenders – Lloyds subsidiary BM Solutions and Nationwide’s The Mortgage Works – say they currently have no plans to tighten lending criteria.

Ahuja says he will barely break even if rates rise, even though he has been buying properties since 1998 at much lower prices than today. “My mortgages cost £16,000 a month and the rent I get is £50,000 a month. A 3% rise in interest rates would double my mortgage costs to £35,000, then on top of that I have £10,000 a month in repair and maintenance costs. It wouldn’t be great. And I know I’m in a better position than most other landlords.

“I rode the boom in buy to let. We are now post boom, and all that buy to let is going to do is pay the bills. But I’ve no complaints, I’ve done well out of it.” He said that so far this year he and his wife have taken seven overseas holidays. He has turned instead to writing novels, with a thriller set in his birthplace, Harlow.

Another landlord, owner of 36 properties worth £4m in Cardiff and south Wales, who wished to remain anonymous, said she currently makes a £50,000-a-year profit from the rent after mortgage costs, but this will drop by around £10,000 once the 2017 tax changes feed through. “What is really worrying though, is what will happen if interest rates go up at any point by, say 3%. I will be paying an extra £45,000 mortgage interest [on a mortgage debt of £1.5m] and my income would go down from £50,000 to £5,000 a year.”

If interest rates rise further, she says her tax bill will be higher than her net income, because the new tax rules slash the amount of mortgage interest she can offset against tax. “It is going to be catastrophic for many landlords with large portfolios and large amounts of mortgage interest to pay.”

She is now planning to remortgage some properties and sell off others, although the houses she bought for £60,000 in the Welsh valleys 10 years ago are selling for little more than that today.

But campaigners for tenants and first-time buyers have welcomed the clampdown on buy to let. Implicit in the Bank of England’s analysis is an acknowledgment that landlords have bid up house prices in parts of the UK and forced young families to rent instead. According to the Bank, in the first nine months of 2015 buy-to-let lending rose by 10% compared with 0.4% for owner-occupied homes. It is now close to record levels, while lending to first-time buyers languishes far below the amounts common before the financial crisis.

But small landlords, particularly in London and the south-east, are confident they can ride the coming tax changes, even though many say they will not be making further purchases.

Meanwhile, Ahuja hasn’t given up entirely on property investment. He has spotted a loophole in the new stamp duty regulations which means there is no additional tax so long as the purchase is below £40,000, which has sent him scouring for properties in the north-east of England. “I was looking at two places just today, both at £18,000 each that will pay a rent of £250-£300 a month,” he says.

The next property hot spot may be Hartlepool, not Hackney.

What landlords are saying

• Graham Wilson owns two buy-to-let properties – one in south London and one in Norwich. He says the stamp duty increase means he will abandon plans to buy a third.

“I was going to buy another in Norwich, spending something between £150,000 and £200,000, but we have started to do the sums and it no longer looks profitable,” he says. “Some people will rush to buy at the start of the year, but I won’t be in a position to do so until June or July, so I’ll be too late.”

Wilson, who worked as a music producer and now runs a website selling antique watches, has the properties in place of a pension. He’s 55 and may sell up when he gets to his 60s.

“I bought the Clapham place to live in, then moved out to Norwich two years later and kept it on to rent. There are four bankers living in it. The value has trebled in the nine years that I’ve had it. Although they pay a big sum, I don’t put the rent up each year and once I’ve done work on the house there isn’t much extra."

His Norwich property, which is let to a family, is similar, he says, with much of the gain coming from rising prices, not income. “It’s definitely not easy,” he says. “You have to keep on top of it, keep on top of the [interest] rates and how much you are spending on looking after the properties. If you want to have the place rented, even in London, you cannot charge too much.”

• Retired chartered accountant John Morgan has been a property investor for 30 years and owns a substantial number of student lets in Canterbury and three one-bed apartments in Stockport, which he rents to professionals.

He says large landlords like him are unlikely to expand their portfolios at the moment. “It’s a full attack by the government on property investors,” he says. “You have to pay to get into the market through higher stamp duty, you have to pay to stay in the market through the reduction of tax relief, and you have to pay to get out with the demand to pay capital gains tax within 30 days.”

Morgan says the wear and tear allowance, which allowed landlords of furnished properties to claim 10% tax relief even if they didn’t do any refurbishment, was “generous” and he’s not surprised to see it go. But he believes the combination of changes will put off many landlords – including him.

“There are too many uncertainties; people are going to be wondering what the government is going to do next – will it increase capital gains, for instance,” he says. “If I sell a house I will still reinvest in property, but I am not going to reinvest my profits.”

Mary Clarke* has a two-bed buy to let in north London which she has been letting for five years. “I used to live in it as a tenant, then the landlord was selling so I approached him privately and we did a deal. Then I met someone and my circumstances changed and we started a family, so we needed to move somewhere bigger – I loved the flat so I kept it on,” she says.

Clarke lets the property privately and manages repairs herself. She says that once she has paid £1,000 for insurance each year and paid into a repairs fund with the other flat owners each month, she makes no profit. But since she bought the flat it has increased in value by about 400%. “It’s quite a small property and we don’t make anything out of it, but the tax changes won’t really make a difference. We weren’t planning to buy anywhere else, so the stamp duty change won’t make a difference.”

*Not her real name

What the tax changes mean

As things stand, people buying to let can claim tax relief on their mortgage interest payments at their marginal rate of tax – so 40% relief for higher rate taxpayers and 45% for the most well off. From April2017 this will gradually be reduced to a flat rate of 20%, phased in over four years. Nationwide building society estimates someone with a £150,000 buy-to-let mortgage earning a rental income of £9,600 a year will see their net profit fall from £2,160 to £960 a year. Once letting fees and voids are included, profits may disappear completely.

Wear and tear allowance Barely noticed amid the furore of the cut in tax relief was the parallel cut in wear and tear allowances. Landlords will no longer automatically be able to deduct 10% of their rental profits as notional wear and tear, starting from April 2016. Previously, landlords could write off the 10% even if they had not spent any money repairing or replacing things for their tenants that year. From next April they will still be able to get tax relief, but only on costs they have actually incurred on replacing furnishings in their property.

Stamp duty In the autumn statement chancellor George Osborne announced an extra 3% in stamp duty on purchases of buy-to-let and second homes, starting from April 2016. While owner-occupiers do not pay the tax on purchases up to £125,000, second-homebuyers will face a 3% bill. At each tier of stamp duty – £250,001, £925,001 and £1.5m – investors will pay the additional 3%, until above the final threshold they will pay 15%. On average, a buy-to-let property cost £184,000 last year, and the change will mean a bill of £6,700 instead of the current £1,180.

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