The government’s decision to strip buy-to-let landlords of mortgage interest tax relief is expected to result in rent increases for tenants of up to 30%, as landlords, faced with significantly higher costs, are left with little alternative but to pass on at least some of the pain to tenants, according to the Residential Landlords Association (RLA).
The organisation argues that the tax changes will stifle investment in the buy-to-let sector, causing a potential reduction in available rented housing stock, as many prospective buy-to-let investors are deterred from investing in the sector while some existing landlords opt to exit the market, adding to the current supply-demand imbalance, which would also place upward pressure on rents.
As the government begins to restrict mortgage interest relief for landlords and tax their turnover rather than their profit, a survey by the landlord body has shown that two-thirds of member landlords feel they will need to increase rents to cope with the new tax burden. The study also shows that 58% of members plan on cutting back investment in property.
The RLA yesterday highlighted the fact that some independent experts, such as former Bank of England economist David Miles, have calculated that together with the higher stamp duty, rents would have to increase by up to 30% to enable landlords to meet their higher costs.
Alan Ward, chairman of the RLA, said: “Today’s tax increases contradict everything the government has said about needing a larger rented sector to give tenants more choice and more affordable housing.
“It is tenants who will be hit hardest by these punitive tax increases. Aside from likely paying more in rent, in many places they will face a growing shortage of affordable places to rent.
“We call on Ministers to undertake a major review of the impact of this policy and if all the predictions about its impact are right, to abolish the changes in the autumn budget.”