The NRLA Demands Change in the Private Rental Sector

Across the country landlords and renters are struggling as mortgage costs soar, tax hikes bite and uncertainty remains about the impact of forthcoming rental reform on the market. It is time for the Government to take urgent action to support the private rented sector.

The 13^th consecutive interest rate rise by the Bank of England has caused anxiety for many landlords. Even before the Bank’s recent decision, the Intermediary Mortgage Lenders Association (IMLA) highlighted the rising costs of buy-to-let mortgages. Recently-published IMLA figures reveal some landlords have seen mortgage costs rise by almost 240 per cent since December 2021. 

Further analysis, conducted by Capital Economics for the NRLA, reinforces how current market trends will reduce the supply of private rented accommodation. The research finds that, if the base interest rate peaks at five per cent and remains above 2.5 per cent until the end of 2027, up to 13 per cent of UK private rented properties could be lost to the market compared to 2021. This would lead to a loss of £1 billion in income and corporation tax revenue per year for the Treasury.

The loss of these homes would only deepen the crisis that many renters already face as the demand for homes to rent continues to massively outstrip supply. 

According to Savills, net profits for investors in the private rented sector fell in the first quarter of this year to their lowest point since 2007, a result, it says, of galloping interest rates and the impact of tax changes in the sector. Whilst some argue that landlords must simply absorb added costs, the reality is that the vast majority are individuals – with most letting just one or two properties – many to contribute to their pension. These are not wealthy property tycoons with bottomless reserves.

One way to support renters to access the sector is to unfreeze the Local Housing Allowance (LHA) as a matter of urgency. During a cost-of-living crisis and a time of historic inflation, it is shocking we have a housing benefits system linked to rent levels which existed in April 2020, rather than rents as they are today. The result of the freeze, as the Institute for Fiscal Studies has noted, is that just five per cent of private rental properties listed on Zoopla are affordable to housing benefit or Universal Credit recipients. That simply cannot be right.

Unfreezing the LHA could actually save the public money. Government estimates suggest that uprating housing benefit rates across Britain to the 30^th percentile would cost £700 million in 2023/24. By contrast, in 2021/22, councils in England alone spent £1.6 billion on the provision of temporary accommodation for homeless households.

Alongside these measures action should also be taken to reduce costs faced by responsible landlords. To make this happen, the Chancellor must reverse the Treasury’s decision to restrict mortgage interest relief (MIR) in the private rented sector to the basic rate of income tax. 

Research by Capital Economics for the NRLA has not only found that restrictions on mortgage interest relief have led to approximately 1.2 million fewer properties in the private rented sector in the UK than there otherwise would have been. It also suggests that the annual income and corporation tax revenue from these lost rented properties would have boosted Treasury revenue by £1.5 billion. 

Reversing the MIR change therefore would help stem the supply-side challenge in the rental market, reduce future rental inflation, and provide welcome additional revenue for the Treasury. 

Capital Economics’ figures also support our argument that the Government must scrap the tax on new homes to rent. According to their report, removing the 3-percentage point stamp duty levy on the purchase of additional homes would see almost 900,000 new private rented homes made available across the UK over the next ten years. As a result of increases in income and corporation tax receipts, their modelling also suggests that these additional homes would mean the Treasury benefits from a £10 billion tax windfall over the same period.

The Government must take action now to back responsible landlords to deliver more homes for renters, many of whom will otherwise continue to struggle to access the private rented sector.

* Meera Chindooroy is deputy director of campaigns and policy for the National Residential Landlords Association *

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