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Landlords are urging a tax reform in order to combat the rental crisis sweeping the country. In the last year, mortgage prices have been steadily rising for buy-to-let landlords which for many means that selling their investment has sometimes seemed more financially viable than continuing with their rentals.
This has been bad news for tenants, with more people seeking rentals than ever before, in December 2022 Zoopla reported that tenant demand is 46 per cent above the five-year average, while total supply is 38 percent lower, highlighting a significant supply and demand challenge within the UK rental market.
The widespread supply crisis has additional implications for renters from lower economic backgrounds. With reduced suitable affordable accommodation on the market, many renters will be forced into low quality rentals.
Tax challenges being faced by landlords
Tax changes which have been implemented over the last few years have had a significant impact on landlords. Since the introduction of Section 24 tax ruling in 2015, which means that landlords can no longer deduct their mortgage interest payments from their rental income when calculating their tax bill, landlords have faced increasing challenges and uncertainty around the profitability of their investments.
Additionally, landlords will be familiar with the additional 3% stamp duty surcharge for second residential properties and investments. Introduced in 2016, the reason for the surcharge was to combat housing and financial challenges caused by a nationwide increase in second home ownership.
Conservative MP, Andrew Lewer, made the case in the House of Commons Magazine for a tax reform for property owners, stating “Restrictions on mortgage interest relief and the imposition of a stamp duty levy on the purchase of homes to rent out have indeed made life more costly for landlords.”
In the article Lewer suggested that increasing tax and mortgage rates is contributing to landlords choosing to sell their investments which no longer seem financially viable to keep, causing significant challenges for the UK rental market.
“Marry this to the uncertainty surrounding the government’s plans for the sector, whether in energy efficiency requirements or the ending of Section 21 repossessions, and you do not exactly have an attractive market.”
Lewer wants to see a reform which scraps the 3% stamp duty surcharge for additional homes which he believes will greatly increase the number of new privately rented homes being made available across the next decade. He also suggested an unfreezing of Local Housing Allowance and better security for future rental regulations to encourage more long term investment.