Written By Em

Scrapping a tax hike on rented housing may help ease the housing crisis faced by renters, according to an analysis by Capital Economics.

Since 2021 mortgage interest tax relief for landlords has been limited to the basic rate of income tax. Modelling conducted for the National Residential Landlords Association (NRLA) by research consultancy Capital Economics suggests that reinstating mortgage interest relief (MIR) in full for the private rented sector would help alleviate the sector’s supply crisis.

According to the analysis, if the Bank of England’s base interest rate was to peak at 5% and remain above 2.5% until the end of 2027, as many predict, up to 13% (735,000) of private rented properties could be lost across the UK compared to 2021. This would lead to a loss of £1 billion of Income and Corporation Tax revenue per year for the Treasury.

With MIR reinstated, Capital Economics estimates that 110,000 fewer properties would be lost from the private rental market, with the Treasury benefiting to the tune of £400m in Income and Corporation Tax.

This research comes amid a supply crisis which continues to cause misery for renters across the UK desperately seeking a place to live. The Bank of England, the Government and the cross-party Housing Select Committee are among those to have warned that demand across the sector is outstripping supply. 

Capital Economics also found that scrapping the mortgage interest reforms could reduce future rental inflation in the sector and reduce financial pressures on landlords planning maintenance and improvements. 

The NRLA is calling on the Government to undertake a full review to examine the impact of recent tax rises on the sector. Such a review should cover the effect MIR changes have had on the supply of private rented homes and the cost of accessing rented housing. It must also consider the rationale which underpinned the change given the Institute for Fiscal Studies has previously argued it is wrong to suggest landlords have been taxed more favourably than homeowners.

Ben Beadle, Chief Executive of the NRLA, comments: “In 2015 the Government said it wanted to ‘create a more level playing field between those buying a home to let and those buying a home to live in’. In doing so it hiked costs for responsible landlords and totally ignored the burden it would create for renters. 

“In the midst of an unprecedented cost-of-living crisis, the Government needs to put economic reality before political pride and reverse this travesty of a reform.

“Tax hikes on landlords, exacerbated by rising interest rates, have deepened the supply crisis. And as this research demonstrates the situation is unlikely to improve until and unless it is reversed.

“A radical rejection of these damaging policies is necessary to help stem the tide of lost rental properties, limit rent rises, and boost Treasury revenue.” 

On 17th May, the Government published the long-awaited Renters Reform Bill which will deliver on their 2019 manifesto commitment to end Section 21 ‘no fault’ evictions and outline plans to strengthen tenants’ rights.

Responding to the publication of the Bill, Matt Downie, Crisis Chief Executive, comments: “After years of waiting, the publication of the Renters Reform Bill is an important moment for the millions of people currently renting their home across England who are in desperate need of some stability.

“Through our services, we see how the lack of security for renters is driving up homelessness. Day in day out, we witness the emotional and financial toll it is having on thousands of people across our country. It should never have been acceptable for people to live in fear of eviction and homelessness, forced to tolerate dangerous conditions so they can keep a roof over their head. Ending this is now finally in sight.

“Over the coming months, we look forward to working with the Government as the Bill progresses. Now is the time to finally put an end to unnecessary evictions that force people into homelessness and ensure that everyone has a safe, secure place to call home.”

Ben Beadle, Chief Executive of the National Residential Landlords Association (NRLA), comments: “Responsible landlords need to be confident that when Section 21 ends, where they have a legitimate reason, they will be able to repossess their properties as quickly as possible. Without this assurance, the Bill will only exacerbate the rental housing supply crisis many tenants now face.

“Whilst we welcome the Government’s pledge to ensure landlords can effectively recover properties from anti-social tenants and those failing to pay rent, more detail is needed if the Bill is going to work as intended.

“Ministers must develop a plan to improve the speed and efficiency with which the courts process possession claims. Although the Government has accepted NRLA calls to digitise cases, staff numbers need to increase in the court system as well to meet the needs of these reforms. 

“Likewise, the Government must recognise the serious concerns of landlords letting to students about open ended tenancies. Without the ability to plan around the academic year, students will have no certainty that properties will be available to rent when they need them.

“We will continue to work with the Government, MPs and Peers to ensure the Bill workable and fair to both responsible landlords and tenants.”

Neil Cobbold, Managing Director of PayProp UK, comments: “After years of delay the Renters (Reform) Bill has finally been published, but it contains no surprises for the industry as the measures were already included in the 2022 Fairer Private Rented Sector white paper.

“While the bill appears to be light on specific details, the Government has announced that more information about the proposals will be outlined in another white paper. Unfortunately, more delays will extend the holding pattern the private rented sector currently finds itself in.

“The industry will not be able to press ahead with reform until the Government clarifies when it will deliver on changes to evictions, applying decent home standards, introducing a new ombudsman, and a landlord portal.

“We trust the Government will consult the wealth of experience and knowledge held by landlords, agents, tenants and other stakeholders to ensure the Renters (Reform) Bill delivers to the benefit of all parties.”