Prime Minister, Theresa May, has launched an amended National Planning Policy Framework, reiterating the importance of private landlords in the housing market. She claimed that the proposed planning rules would boost the building and development of new homes for rent.
The Government’s current taxation policy for the private rental sector contradicts this. The Government brought in a 3 per cent levy for stamp duty for additional residential properties whilst also phasing out tax relief, known as mortgage interest relief. Previous research has highlighted that the proposed changes would lead to higher rental prices in the long-term and reduce profitability.
Recent research from academics working at the University of Liverpool has identified a trend in Ireland, as adjustments to mortgage interest relief act as a psychological barrier to further investment in the private rental sector.
A survey from 3,300 landlords explored the current taxation policy and its impact on the private rental sector and landlords. The findings did not give a good outlook on the long-term future for the sector. The number of landlords who sold property in the last 12 months has continued to rise, and has now reached a four percentage point increase when compared to the previous year. The percentage of landlords planning to sell property has risen by two percentage points, to 22 per cent.
The increase in these figures is thought to be attributed to the tax changes, and especially the mortgage interest relief (MIR) changes, as 70 per cent of respondents claimed the changes would limit their profitability. 62 per cent stated that these changes would reduce their profitability by around 20 per cent.
When asked how landlords would mitigate any adverse effects from these changes, most respondents (67 per cent) reported that they were preparing to increase rent. Other strategies considered included leaving the sector (25 per cent), selling properties to decrease their mortgage costs (25 per cent) and limiting their investment portfolio (24 per cent).
The findings illustrate that the planned tax changes are likely to have an adverse effect on a large majority of landlords. As landlords plan to sell properties and increase rents, there will be a further negative impact felt by tenants, as both housing costs and competition for property increase.
Over the course of the next 12 months, half of landlords stated that they planned to increase rent, with the most common reasoning reported as MIR changes. 41 per cent of landlords indicated that their tenants would face increased rental costs in the short-term.
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