The call to reinstate full mortgage interest tax relief for two million landlords follows a raft of exemptions that have been stripped from buy-to-let (BTL) investors and replaced with tighter regulations over much of the past decade.

This move would prevent the loss of 110,000 private rented homes over four years, amounting to £400m of additional Treasury revenue, according to the National Residential Landlords Association.

The body’s call comes at a time when landlords face higher costs resulting from the government’s drive to impose energy performance certificate (EPC) ratings of at least C, by 2025 for new tenancies and by 2028 for existing lets. The average EPC rating across the UK is D.

It would certainly help if the government reversed some of the tax burdens. It should be encouraging investment in property, not stifling it

Meanwhile, the wide-ranging Renters (Reform) Bill, launched in parliament in May, will scrap Section 21 no-fault evictions for the UK’s 11 million renters and introduce the Decent Homes Standard to the private rented sector for the first time.

The average BTL two-year fixed-rate mortgage has jumped from 2.96% five years ago to 5.58% at the end of May, according to Moneyfacts, while the Bank of England has raised interest rates 12 times, reaching 4.5%, as it fights inflation.

“The variety of rising costs and new regulations, coupled with more than a year of rate rises that could stay high for some time, is pretty close to a perfect storm for landlords,” says Private Finance technical director Chris Sykes.

Connect Mortgages director Niall Hebron explains that this cycle of rising costs for landlords ends with higher rents for tenants.

“I represent a landlord with a two-bedroom flat in Hornchurch [in Essex],” Hebron says.

For many landlords, this is their job and a sizeable proportion of their investment. It is not simple to say, ‘Sell up’

“Three years ago, it rented for £1,000 a month. We have just had to put it up to £1,400 a month. This is a market that suffers from supply problems.”

Around 140,000 landlords retired last year, while a combination of high house prices and rising BTL regulation means “the next generation of landlords has been stemmed”, according to data from Hamptons in April.

However, Mortgages for Business sales director Jeni Browne is one of many brokers who say that, while some landlords have left the industry in recent years, the majority are proving themselves to be “very agile” in looking for ways to stay in the business.

Many landlords are combing through their portfolios and selling off properties that are a drag on investment. Others, who had always been based in London, are now looking for properties in the North, where yields are currently higher.

If the government wanted to restrict the influence of private landlords, it did half the job. The other half is to build more homes

Hebron adds: “Some landlords are moving into houses in multiple occupation, multi-unit freehold blocks and holiday lets, which bring in higher rents. But this is a specialised area. It involves a host of higher standards and higher costs that range from fire door safety to electrical wiring.

“For holiday lets, the property must be cleaned and put back to its original standard every time a new guest arrives. I know many long-standing landlords who would not dream of moving away from renting a home to a single family or couple, because of the extra attention this takes.”

Browne observes: “For many landlords, this is their job and a sizeable proportion of their investment. It is not simple to say, ‘Sell up.’”

It is pretty close to a perfect storm for landlords

Significant changes for property investors came with Section 24 legislation, introduced in the 2015 Finance Act, which each year made an additional quarter of landlords’ finance costs non-deductible between 2017 and 2021.

An additional 3% stamp duty surcharge was introduced in 2016, when then-chancellor George Osborne sought to cap landlords’ share of home sales, then running at around 20%, in favour of owner-occupiers.

A range of other legislation has been introduced in the past decade, from a ban on letting agents charging fees to tenants, to keeping the capital gains tax rate for residential property above the rate for other assets. The result was higher costs for landlords, which were passed on to tenants as rent.

Some landlords are moving into houses in multiple occupation, multi-unit freehold blocks and holiday lets, which bring in higher rents. But this is a specialised area

Sykes says: “If the government wanted to restrict the influence of private landlords, it did half the job. The other half is to build more homes, and that has proved harder to do.”

Landbay managing director, intermediaries, Paul Brett says: “The country needs more good rental property to cope with the demand.

“It would certainly help the private rented sector if the government reversed some of the tax burdens. It should be encouraging investment in property, not stifling it.”

This article featured in the June 2023 edition of MS.

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