Landlords in the UK are facing a significant threat from Labour’s proposed reforms, and this has dire implications for renters. If you’re a landlord concerned about how these changes might affect your investments, get in touch with us at [email protected].
The Decline of Landlord Profits
Over the past decade, landlord profits have plummeted. An onslaught of taxes and regulations has made it increasingly difficult for property investors to maintain profitability.
- 2013 vs. 2024: A landlord in the higher income tax bracket would have made a £2,200 profit on a £500,000 property back in 2013. Fast forward to 2024, and that same landlord is staring at a £1,300 loss despite similar mortgage rates.
This dramatic shift has serious implications.
The Rental Market Crisis
As landlords exit the market, the rental supply has stalled. Since 2016, landlords have sold 300,000 more properties than they’ve purchased. This shortage has driven up rents, with the average rent for new lets hitting £1,369 per month, a 5% increase in the past year.
Looming Tax Increases
Labour’s anticipated capital gains tax (CGT) changes could worsen the situation. Rachel Reeves, the shadow chancellor, is expected to propose tax changes that could force landlords to pay up to £90,000 more when selling properties.
- Disillusioned Landlords: The Royal Institution of Chartered Surveyors recently warned that fears of a tax raid are prompting many landlords to sell their properties, further pushing rents higher.
New Rental Regulations
The Government’s flagship Renters’ Rights Bill is another source of concern for landlords. Here’s what it entails:
- Non-Payment Delays: Landlords will be banned from evicting non-paying tenants for up to three months.
- No-Fault Evictions Gone: The proposed legislation eliminates Section 21, forcing landlords to rely on the already problematic Section 8 for evictions, which has an average court delay of 55 weeks.
Landlords and estate agents are warning that these changes could lead to 5-10% higher costs for tenants.
A Call to Action
We at Telegraph Money are launching a campaign urging the Government to reconsider its approach towards landlords. Here’s what we propose:
- Freeze Capital Gains Tax: Stop the proposed tax increases on property sales.
- Reassess Tax Policies: Evaluate the punitive tax measures currently in place.
- Delay the Renters’ Rights Bill: Postpone this legislation until a thorough review of the court system has been conducted.
Historical Context
Interestingly, the boom in the buy-to-let market began during Tony Blair’s Labour government in the late 1990s. Despite Labour’s traditionally anti-landlord stance, tax policies during that era facilitated significant growth in the rental market.
- Between 1997 and 2007, the number of renters surged by 29% thanks to lenient tax policies.
However, since 2015, the Conservative government has clamped down on landlords, introducing measures designed to push them out of the market and free up properties for first-time buyers.
The Financial Burden
The financial landscape for landlords has changed drastically:
- A three percentage point stamp duty surcharge has been introduced on buy-to-let purchases.
- Prior to 2017, landlords could deduct mortgage interest from rental income. This relief has since been phased out, replaced with a mere 20% tax credit.
Chris Norris from the National Residential Landlords Association (NRLA) notes that the last decade has been defined by “change and fear of change” for landlords. The constant alterations make it incredibly hard to plan, leaving investors feeling uncertain about their financial future.
Statistics Speak Volumes
Data from Rightmove reveals a concerning trend:
- The proportion of rental homes up for sale has reached an all-time high, with nearly 20% now on the market—up from 14% last year and just 8% in 2010.
- In London, nearly a third of rental properties are now for sale.
Future Implications
If these trends continue, the rental market could face severe shortages, affecting renters the most.
- Higher costs for tenants are almost a certainty.
- Increased uncertainty may drive away good landlords, leaving only those willing to take on the heightened risk.
Conclusion: A Balancing Act
Labour’s current policies could have disastrous effects for both landlords and renters. By driving decent landlords out of the market, they risk worsening the housing shortage and inflating rents even further.
It’s time for the Government to rethink its approach. A balanced strategy that supports landlords while protecting renters is essential for a healthy housing market.
