The government is facing calls to overhaul landlord tax rules in a bid to address the long-standing issue of unaffordable rents across the UK. Campaigners and housing charities argue that current regulations may be contributing to the squeeze felt by renters, and that reforms could help stabilise or even reduce rental costs.
Renters have consistently faced significant financial pressure, with recent data from Rightmove indicating that average asking rents outside of London reached a new record of £1,280 per calendar month in the first quarter of 2024. This represents a 7.7% increase year-on-year, outpacing wage growth for many. In London, the average asking rent hit £2,119 per calendar month, a 5.3% annual rise. These escalating costs mean a larger proportion of household income is being allocated to rent, leaving less for other essential expenses and savings.
One area frequently highlighted for reform is the tax treatment of landlords, particularly regarding mortgage interest relief. Since 2020, landlords have not been able to deduct mortgage interest costs from their rental income before calculating their tax bill. Instead, they receive a basic rate tax credit (20%) on their mortgage interest payments. Critics argue that this change, alongside other legislative adjustments, has made buy-to-let less profitable for some landlords, potentially leading to a reduction in the supply of rental properties as some exit the market, thereby exacerbating the demand-supply imbalance and pushing rents higher.
The implications of any tax changes would be far-reaching. For existing homeowners, particularly those with buy-to-let portfolios, an overhaul could significantly impact their profitability and investment decisions. First-time buyers, who often rent before purchasing, might see some relief if rental prices stabilise or fall, making it easier to save for a deposit. However, a significant reduction in rental stock due to landlords exiting the market could also make finding a suitable rental property even harder.
Organisations like Generation Rent and the National Residential Landlords Association (NRLA) have previously voiced differing perspectives on the issue. While tenant advocacy groups typically support measures that could lead to lower rents, landlord associations often argue that increased taxation and regulation can deter investment in the sector, ultimately reducing the availability of quality rental homes. Any government review would need to carefully balance these competing interests to ensure a sustainable and fair housing market for all.
Source: Rightmove