70,000 BTL Landlords Exited the Private Rental Sector Last Year

An accountancy firm says that 70,000 buy-to-let landlords have exited the UK’s rental market over the last 12 months.

UHY Hacker Young analysed HMRC data and reveals that the UK’s 2.82 million landlords in 2021 have now fallen to 2.75 million. That means the rental market lost 116,000 buy-to-let properties and tenants saw rents rocketing.

The firm also says that the big reason for landlords exiting the market is down to the substantial tax increases they have had to endure in recent years.

Could deduct their finance costs
Previously, landlords could deduct their finance costs, such as mortgage interest, to lower their income tax bill. That rule was changed in 2017 and the claimable amount was tapered to end completely in 2020. The result was that most landlords paid tax on their property income – and growing numbers found they were pushed into a higher tax bracket and then made a loss as a result.

The tax landscape also saw the ending of landlords claiming ‘wear and tear’ expenses from rental income. Landlords also saw a reduction in private residence relief in 2020 which pushed up their Capital Gains Tax bill when selling a rental property that was previously their main home.

Put some landlords off from investing
In addition, landlords also pay a 3% Stamp Duty surcharge which has put some landlords off from investing – and prevented new ones from entering the PRS.

A UHY Hacker Young spokesperson said: “We have seen an increasing number of landlords selling off or reducing their portfolios over the past year. Less favourable tax treatment has encouraged this exit from the sector, as well as dissuading newcomers from entering the market.”

Driving landlords out of the market
They added: “Reducing the number of properties for rent by driving landlords out of the market doesn’t benefit tenants as it adds to the upward momentum on rents. The decrease in available properties has led to increased competition amongst renters. Landlords who have managed to stay in the market have benefitted from rising rents as a result of this excess of demand over supply.”

In the UK, rents have risen by 15.2% over the last five years, says the Office for National Statistics, and Rightmove says that rents will continue rising in 2023 – especially in London with demand from tenants rocketing.

Capital gains tax change is major worry for landlords

A survey of some 2,000 landlords shows that more than four in 10 want recent changes to Capital Gains Tax allowances reversed. The survey, commissioned by Octane Capital, found that confidence in the sector remains robust, despite the government’s best efforts to reduce the financial returns available to buy to let investors.

In fact, just 8% of those surveyed stated that they had reduced the size of their BTL portfolio over the last year. However, the sentiment survey shows that legislative changes remain the biggest concern for the year ahead, followed by the increasing running costs of BTL such as maintenance and energy bills.

The day to day management also ranked as one of the biggest challenges facing the nation’s landlords, as did the increased cost of borrowing as a result of increasing mortgage rates. The majority of those surveyed – 60% – are also concerned about still more rises in interest rates.

As a result, just 16% of those surveyed stated that they intend to increase the size of their BTL portfolio over the coming year.

When asked which government legislative change they would most like to see reversed, the recent changes to CGT allowance ranked top. The government plans to reduce the CGT tax-free allowance from £12,300 to £6,000 in April of this year, implementing a further reduction to just £3,000 by 2024.

The ban on Section 21 evictions and required improvements to EPC ratings also ranked as some of the changes landlords would most like to see reversed. Octane chief executive Jonathan Samuels says: “It appears as though the exodus of landlords from the rental sector has been somewhat over exaggerated with just a small proportion opting to reduce the size of their portfolio in 2022. That said, while we’ve seen a degree of stability return following a shambolic mini budget last September, many buy to let investors remain cautious about the year ahead. This caution is likely to prevent them from investing further until a greater degree of certainty returns, although we must also tip our hats to the government in this respect, as their consistent attack on the sector remains the number one concern.”

Survey of 1,955 UK landlords carried out by ProperPR on behalf of Octane Capital via consumer research platform Find Out Now (7th January 2023).

Petition calling for landlord tax relief to be reinstated hits 20,200 signatures

A petition that was launched to reinstate tax relief allowing a landlord’s mortgage interest to be set against rental income has now reached 20,201 signatures – and has seen another well-known backer step forward.

The petition was started by landlord Simon Foster who says: “We want the Government to reinstate the ability of landlords to set the full amount of mortgage interest against rental income before tax is calculated. Like many self-employed businesspeople, I am a small, well-established private landlord that is now struggling to make any money from letting properties. I will, like many, be forced to sell my properties. He added: “Unless the ability to offset mortgage interest against rental income is reinstated I will, like many, be forced to sell my properties.This could reduce the amount of properties available on the private rental market.”

Marc von Grundherr, a director of Benham and Reeves, said: “Rather than commit to solving the housing crisis and build more homes, the government has looked to bring about a short-term fix by forcing landlords to sell up and exit the buy-to-let sector. This has been orchestrated via a number of legislative changes designed to dampen the financial returns available to investors.Reduction in suitable rental properties, he adds: “Of course, the consequence of this is a reduction in suitable rental properties and with the sector already in dire need of more stock, it’s the nation’s tenants who are paying the price. High demand is already pushing rents ever higher and as more landlords exit, this problem will only get worse while the quality of available accommodation will also continue to decline.”

Mr von Grundherr also highlights that the petition to reinstate tax relief for landlords will allow the full amount of mortgage interest to be set against rental income before tax is calculated.

No longer able to deduct any of their mortgage interest
Tax credits, which came into force in April 2020, saw landlords no longer being able to deduct any of their mortgage interest from their rental income when calculating the taxable profits of their investment. Instead, a 20% tax relief on mortgage interest payments was implemented, a change that has reduced the profitability of buy-to-let investing, along with a string of other legislative changes such as an increase to buy-to-let stamp duty costs and, more recently, changes to Capital Gains Tax allowances.

The Government says it will respond to all petitions that get more than 10,000 signatures and when there are more than 100,000 signatures, it will be considered for debate in Parliament.