'Govt must act fast to help UK's renters'

The government needs to take action to undo the damage that recent tax hikes have caused in the market.

Following last week’s interest rate rise – the thirteenth consecutive increase in the space of 18 months – the supply crisis is likely to worsen considerably over the coming months.

With many landlords holding buy-to-let mortgages, 85 per cent of which are interest-only, it is a time of acute anxiety as they come to terms with shrinking profit margins, heightened costs and uncertainty over reforms to the sector.

The financial pressures on landlords remain significant and continue to worsen due to a range of factors that the government is doing little or nothing to address.

An ongoing, systematic failure on the part of government to address the sector’s supply and demand crisis is causing misery.

Rising inflation means substantially higher maintenance costs for landlords. Set alongside a tax system that discourages the provision of the very rental properties tenants need, the investment environment for responsible private landlords could not be more unfavourable.

The recent rate rise ratchets up this pressure, encouraging more landlords to sell as it becomes all but impossible to continue in the market.

Recent research for the National Residential Landlords Association shows that 725,000 rental properties could be lost from the sector if interest rates peaked at the Bank of England’s new rate of 5 per cent.

Likewise, some landlords have seen mortgage payments go up by approximately 240 per cent. It is little wonder that Savills has noted that average net profits for landlords are now at their lowest since 2007.

This could not come at a worse time for renters.

An ongoing, systematic failure on the part of government to address the sector’s supply and demand crisis is causing misery for prospective tenants across the country.

Renters want decent, affordable rental accommodation. Tax hikes on the sector are only making this ambition harder for them to realise.

We have a ludicrous situation whereby the tax system actively supports the provision of short-term lets over long-term homes to rent.

Figures gathered by the research consultancy BVA BDRC for the NRLA have found that in the first quarter of 2023 the number of private landlords in England and Wales planning to sell rented properties reached its highest rate on record. 

As many as 33 per cent said they expect to reduce the number of properties they will rent out this year. This is at a time when 67 per cent of landlords said demand for properties from prospective tenants was increasing.

The Treasury needs to develop bold, pro-growth tax policies that support, rather than hinder, the provision of homes to rent.  

The chancellor should begin by scrapping the decision taken by George Osborne to restrict mortgage interest relief to the basic rate of income tax.

The argument made by the then-chancellor that this was about creating a more level playing field with homeowners was roundly rejected by the Institute for Fiscal Studies in 2016. It concluded that the tax system “is not, and was not, even before the recent changes, more generous to people buying to let”.

To make matters worse, the mortgage interest relief changes do not apply to short-term holiday let accommodation. It means we have a ludicrous situation whereby the tax system actively supports the provision of short-term lets over long-term homes to rent.

As the IFS rightly concludes: “It is difficult to think of any justification for pursuing this policy.”

Research produced by Capital Economics for the NRLA underlines the stark fact that the Treasury’s changes to mortgage interest relief have had a detrimental effect on the market.

Its report concludes that reinstating mortgage interest relief in full for the private rented sector could prevent 110,000 properties from leaving the market – homes that are badly needed for tenants.

Alongside this, the government needs to scrap the 3 per cent stamp duty levy on the purchase of long-term homes to rent out.

With tenants in some towns and cities queuing to view ever-dwindling numbers of rental properties, it makes no sense to have a tax that penalises the provision of the homes they need.

And for tenants, housing benefit rates needs to be unfrozen. The IFS has found that as a result of freezing rates in cash terms as they were in April 2020, just 5 per cent of properties now listed on Zoopla are affordable for those in receipt of housing benefit or universal credit.

As the IFS rightly concludes: “It is difficult to think of any justification for pursuing this policy.”

Our message to the government is simple: act now to deliver more homes for renters. A refusal to do so will only serve to cause further misery for them right across the country.

Ben Beadle is chief executive of the National Residential Landlords Association