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boosting supply to meet demand

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Introduction

The private rented sector (PRS)  now provides a home for one in five UK households. Buying a home is out of reach for many people, and the demand for private renting is set to increase. The Royal Incorporation of Chartered Surveyors (RICS) estimates that 1.8 million new homes to rent are required by 2025.

Despite this, little is being done to create a pro-growth tax environment for the sector. In fact, the tax environment is actively dissuading landlords from investing in new properties or releasing old ones for purchase.

The majority of PRS accommodation is supplied by ordinary people who own one or two properties, investing as an alternative to a pension. Government policy has undermined the confidence of private landlords. Recent tax changes, including restrictions on mortgage interest relief and an additional 3% surcharge on stamp duty have deterred investment by landlords and stalled the whole housing market.

Objectives

The RLA is calling on all parties to commit to -

  • Ending the stamp duty levy on additional homes where the property is adding to the net supply of housing. This includes bringing empty homes back into use, converting commercial buildings to residential, developing new properties or converting larger properties into smaller, more affordable rental properties.
  • Reducing the capital gains tax (CGT) rate for the sale of residential properties so that landlords are not put off from selling properties to tenants.
  • Scrapping the changes to mortgage interest relief (MIR).

Briefing

The demand for rental properties continues to increase, with 25% of landlords reporting increased demand in the RLA's most recent research.  The Royal Incorporation of Chartered Surveyors (RICS) estimates that 1.8 million new homes to rent are required by 2025 to keep up with supply. Despite this, confidence in the sector continues to deteriorate with more landlords selling properties than buying them.

Landlords have to pay an additional levy on stamp duty when buying a new home. This change was introduced by George Osborne as an attempt to 'level the playing field between first-time buyers and landlords'. However, in reality, the cross-over between the two groups is small and the change only serves to put landlords off from providing the homes that tenants desperately need. Research by the University of Cambridge shows that 69% of landlords were put off providing new homes by these changes.

If the supply of homes is to be maintained then more needs to be done to incentivise landlords to invest in bringing empty homes to the market. That is why the RLA is calling for the removal of the stamp duty levy where they will be purchasing property with the intention of increasing supply. This includes bringing empty homes back into use, converting commercial buildings to residential, developing new properties or converting larger properties into smaller, more affordable rental properties.

Where there is scope for tenants to become owner-occupiers, the current capital gains tax (CGT) regime makes this less likely. This is because landlords pay more CGT when selling a property than they would with any other investment. Our research has shown that capital gains tax reduces the supply of homes for owner-occupiers as landlords are less likely to sell where they would normally want to. The RLA is calling for reforms so that property sold to tenants leads to a lower rate of CGT needing to be paid.

Mortgage interest relief (MIR) changes are a major cause of the lack of landlord confidence. With 53% of landlord expect to be affected by it by 2020/21 many landlords are in a position where their investments are no longer viable. This means that a significant proportion of landlords may have to leave the sector in the next few years to protect themselves. The RLA is calling for the removal of the MIR changes to give landlords the confidence they need to continue to provide the high-quality homes that tenants badly need.

The majority of PRS accommodation is supplied by ordinary people who own one or two properties, investing as an alternative to a pension. The RLA believes that the tax regime should support a positive, pragmatic approach that promotes growth of the homes tenants need, while providing these landlords with the security their investments are safe. That is why we are calling on all parties to adopt our proposals for a positive future for the PRS.

 

Research Provided by RLA PEARL. See more

Landlords affected by mortgage interest relief by 20/21
53%
Landlords less likely to rent to under-35s due to tax changes
20%
Landlords put off from providing new homes by tax changes
69%

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YOUR STORIES

I am simply poorer. It has affected my quality of life. Before the changes I was renovating and improving property to bring my little slice of the rental market up to a quality where my tenants felt they had a home.

I have never previously increased rents for tenants in situ but the recent changes have been so punitive that I have reluctantly passed the costs on to all of my tenants.

After holding a portfolio of more than thirty properties (houses, flats, HMO’s) for near 20 years tax and other legislative changes have resulted in decision to dramatically reduce the level of property assets held by at least 50%. This began two years ago and is expected to take a further three. A decision will then be made regarding the remaining 15 units held.

If I continue to have to sell my family’s inheritance is at stake and all the hard work we have done to provide excellent quality housing around Birmingham has gone to waste. I’ve already had to ask a family of four to move elsewhere. She was upset at the moving costs and we fell out as a result which was very sad as we had a good relationship with each other. 

I wanted to buy a house with my partner but the second property tax duty applies, even though this is my only house which I have had to rent out due to relocation and loss of work.

We are ethical landlords with commendation from Croydon council and we feel very disillusioned by how we are not supported at all for doing what we can to give first class homes.

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