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Buy-to-let landlords will inevitably ‘seek to increase rents’ to offset higher costs

Many tenants renting privately will almost certainly be hit with rent rises following changes to the tax regime for landlords, according to a new report.

Research by the lender Paragon Mortgages found that around a quarter of buy-to-let landlords are passing on increased costs to their tenants as a result of the cap on tax relief for buy-to-let mortgages being phased in from April.

Paragon Mortgages’ latest Private Rented Sector Trends report, based on interviews with a panel of more than 200 experienced landlords, shows that levels of awareness about the implications of the tax relief changes are rising, with 58% of landlords reported having already taken, or are making plans to take, action ahead of time.


The most commonly reported actions have been to increase the rent charged to cover some or all of the increased cost (24%), to maintain their current properties but not buy any more (21%) and to sell some of their properties and not buy any more (16%).

High demand from tenants is also expected to place upward pressure on rents, with 94% of landlords describing the market as stable or growing, and fewer than one in 30 suggesting a decline.

Tenant demand also continues to impact average void periods, which remain unchanged at 2.7 weeks.

“Whilst it is predictable that landlords will seek to increase rents in response to higher costs this clearly will not be good news for tenants, particularly those that are already struggling to save for a deposit,” said John Heron, managing director, Paragon Mortgages.


The report revealed that 65% of landlords reported no change in sentiment, while 12% said that they are more pessimistic than three months ago, down from 18% in the last report three months earlier.

Heron commented: “We’ve reached a critical time for landlords looking to plan ahead and this is reflected in the Q4 report. It’s clear that landlords’ understanding of the changes has improved and that more landlords are developing a clear strategy to address the impact of the changes.

“However, despite increasing optimism, we must remain cautious. The changes have not started to be implemented yet and the full impact will not be felt for many years.” 

David Miles, professor of financial economics at Imperial College London, recently called for the planned changes to tax for buy-to-let landlords due to be introduced in April to be scrapped.

He believes that tenants in the private rented sector face potential rent increases of up to 30% as a result of tax changes.

Miles said: “The effects of the tax changes are clearly large. Generally rents would need to rise between 20% and 30% to offset them, more often than not rents need to rise by closer to 30%.

“The impact of the reduced tax deductibility of interest payments, which affects cash flows every year, is substantially larger than the impact of higher [additional 3%] stamp duty [surcharge on second homes], which effects cash flows only at purchase and is spread over the length of the landlord’s investment.”

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    I love your headline, unfortunately, not all of us will be able to raise rents to cover rising costs?
    We are stuck with affordability issues outside the area 'where the streets are paved with gold'.
    I have tried to raise my rents recently, with the inevitable consequence of failing to secure a new tenant.
    Therefore, I am forced to reduce them back to previous levels in order to avoid empty properties.


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