Seeking Government support for landlords

March 2024

We've highlighted the challenges faced by landlords and six key actions which could be taken by Government to deliver a thriving private rented sector.

The value of the private rental sector

We are committed to influencing policy and Government to ensure the private rented sector works effectively. We've highlighted the challenges faced by landlords and six key actions which could be taken by Government to deliver a thriving private rented sector.

The UK's private rented sector, housing 4.6 million households1, has steadily grown since the early 2000s with the arrival of buy to let mortgages. Low interest rates have enabled this growth, encouraging many to invest in rental properties for income or pensions. Despite increased regulatory and tax changes for landlords, manageable costs have persisted due to low borrowing rates.

The period of rapidly increasing interest rates following the mini-budget has put pressure on landlords who in many cases will have seen their borrowing costs increase significantly.

This sector offers flexibility, supporting various economic needs and diverse demographics. It also plays a vital role alongside owner-occupation and social housing, providing unique benefits. Government initiatives should support both landlords and first-time buyers without pitting them against each other.

Landlords may respond to policy changes by adjusting rents or reducing expenses. However, these kinds of shifts may limit tenant choices, increase rents, and lead to poorer property upkeep.

It will be the most vulnerable tenants who are impacted most by these changes, particularly if they are not accompanied by an increase in social housing.

The Mortgage Works supports current legislative proposals like the Renters (Reform) Bill, focusing on enhancing standards, tenancies, and landlord registration. However, sustained efforts are needed beyond these reforms to ensure the sector thrives. Neglecting these areas could prompt further landlord exits, potentially weakening the market and driving up rents.

There are six key actions which The Mortgage Works believes could be taken by Government to deliver a thriving private rented sector:

1. A moratorium on all but essential new regulation in the private rented sector

Regulation in the private rented sector has been characterised by piecemeal interventions, which in many cases have no coherent link and are put in place in response to short term campaigns. The changes in the Renters (Reform) Bill represent a coherent package for change which has broad agreement across the sector.

The Mortgage Works are concerned that following the introduction of the Bill’s measures there will be a switch back to the piecemeal approach to regulation which will cause increased uncertainty among landlords. Instead of this approach, Government should commit to a moratorium on all but essential new regulation for a minimum of three years, and preferably five years, after the Bill’s measures are introduced.

This would give Government, landlords and sector bodies time to analyse the impact of changes, including the end of Section 21 evictions as well as giving landlords more predictability in terms of regulation.

Based on this analysis Government should then develop a long term plan for the private rented sector setting out its proposed role, regulatory needs and a long term programme to deliver change.

Orange terraced houses

2. Maintaining the ability to access limited company structures

One of the ways landlords have sought to manage their businesses through recent changes has been to move their properties into limited company structures. This has been particularly used by landlords with larger portfolios and can be seen as part of moves by landlords to professionalise. Landlords who own their properties through a limited company structure are more likely to be working full time in their business - 43% of limited company landlords reported earning a full-time income from property, compared to 26% of individual landlords.2

The advantage of a limited company structure is that it is taxed as a business so will not have the same impacts from recent changes to mortgage interest relief. Limited company landlords are able to offset mortgage interest, finance costs and mortgage arrangement fees against rental income. They are also able to secure more attractive financing from lenders.

If the Government’s aim is to deliver a well run private rented sector with professional landlords, the benefits of accessing limited company structures should be retained. The impact of making changes to this approach may cause landlords to leave the market, leading to fewer properties, higher rents and ultimately a lower tax take for the Government.


3. Reverse changes to mortgage interest relief

Since 2017 landlords have been unable to fully deduct interest costs from rental income when calculating income tax payments. Changes were introduced gradually and since 2021 it has not been possible to offset borrowing costs against rental income from tax. Instead landlords receive a tax credit set at the basic tax rate of 20% of their borrowing costs. As a result, many landlords have seen an increase in their tax payments.

While interest rates remained low this additional tax payment would have been manageable for many landlords.

The recent increase in interest rates will have increased landlord borrowing costs and they are now unable to offset these against rental income when paying tax.

Analysis by the National Residential Landlord Association (NRLA) suggests these tax changes have contributed to there being 1.2 million fewer properties in the private rented sector than there might otherwise have been.3 The same analysis shows that these additional properties could have contributed up to £1.5 billion in additional income to the treasury through income and corporation tax payments. The additional 1.2 million properties in the sector would also have increased tenant choice and helped keep rents at more affordable levels.

HM Treasury should seek to review the impact of landlord mortgage interest relief with the aim of reintroducing some level of support to ensure supply of homes into the sector can be maintained, particularly now interest rates are expected to remain higher than previously.


4. Review other landlord taxes

There are two other key areas where The Mortgage Works would support the review of taxes being paid by landlords to deliver a more effective rental and wider housing sector.

The higher stamp duty rate for additional properties requires landlords to pay an additional 3% on top of their normal stamp duty payment.

This increases costs for landlords and could act as a barrier to new landlords entering the market limiting additional supply of properties. A review of the surcharge, including analysis of its impact on the supply of private rented housing, should be undertaken to assess its impact and set a future direction.

While the surcharge may be considered appropriate in some circumstances, for example second home ownership, its impact on supply of rented properties should be considered. One solution is a rebate for landlords who let properties into the mainstream private rented sector and can demonstrate that they have done so via a tenancy agreement. One way of doing this could be for landlords to lodge tenancy agreements with the new Property Portal, demonstrating their status as long term homes for let.

Capital Gains Tax (CGT) is paid by landlords on the sale of property and could be used as a tool to support landlords who want to sell to their tenants. Any landlord selling a property to a tenant should be exempt from paying CGT on the profits from that sale. This would incentivise landlords and potentially enable more people into home ownership by giving the landlord scope to offer a discount.

Landlord on phone

5. Incentivise landlords to carry out energy efficiency work

As with other forms of housing, significant improvements will need to be made to homes in the private rented sector if the UK is to meet its 2050 net zero targets. Around two-thirds of privately rented properties in England and Wales fall below EPC C and inefficient homes can lead to other problems including damp and mould.4

There is evidence that tax incentives could help make investments more attractive, incentivising retrofit. Research by the NRLA has shown that 56% of landlords would install loft insulation and 63% would install double glazed windows if there was an incentive from Government such as a tax break or grant.

A simple tax restructuring to allow energy performance improvements to be deductible against rental income could help make investment more attractive for landlords. Landlords currently pay income tax on their rental properties at the same rate as other earned income but can deduct costs of managing the property, legal fees, replacement furniture, insurance, utility bills, ground rent and maintenance. Capital improvements, which potentially increase the value of the property, are not eligible and energy efficiency improvements would be considered under this category.

The Mortgage Works believe it should be possible to deduct expenditure on improvements that result in an increase in the Environmental Impact Rating of the property or are included in an agreed list of measures (i.e., loft insulation, cavity wall insulation) when calculating tax. Analysis from E3G suggests this would represent a maximum tax revenue foregone of £1.2bn to 2028, or around £0.24bn per annum over 5 years.5


6. Increase funding for social housing

While a professional, well run private rented sector should be able to offer housing for everyone The Mortgage Works recognises that for many people, particularly those who are vulnerable, would be best served by affordable social housing. Government should ensure that appropriate funding is available to deliver the additional 90,000 homes per year into the social housing sector as recommended by groups including the National Housing Federation.6