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Private rented sector face rent hikes of up to 30% – Specialist Finance Introducer

Private Rented Sector Face Rent Hikes Of Up To 30% 

Tenants in the private rented sector face potential rent increases of up to 30% as a result of tax changes, it is claimed in a new analysis report.

Tax changes, including the 3% extra stamp duty on additional properties, that have affected landlords are having a negative effect on the supply of rental properties and are not the neutral, non-discriminatory system that had been suggested.

Indeed, David Miles, professor of financial economics at Imperial College London, says that the planned changes to tax for buy-to-let landlords due to be introduced in April should be abandoned.


“Stamp duty is now being levied at a higher rate on properties bought to be rented. Most properties bought by private buy-to-let investors will pay an extra 3% in tax. And starting from April 2017 the rate at which interest on mortgages used to acquire buy to let properties can be offset against tax on rental income will be reduced from an investor’s marginal income tax rate down to the basic rate,” he said.

“If these changes were a move towards a more neutral (non-distortionary) system of taxation of rented property, relative to owner occupied property, they would have a rationale. But rather than being a move towards neutrality, as was claimed, they in fact represent a further penalty against private provision of rented properties by potential suppliers who cannot, or chose not to, invest via a corporate entity,” he pointed out.

He believes that the reason for increasing the tax distortion against the rental sector is far from clear and it is hard to understand why the government would want to deter provision of private rented accommodation from smaller landlords.

He argues that generally rents would need to rise between 20% and 30% to offset the impact of the government’s tax rises and added that the tax changes are unlikely to make it easier for first time buyers to enter the market.

He has made a series of calculations that generate a required initial rental yield of 4.9%. This jumps to 5.83% if the only tax change is to reduce the rate at which interest is deducted against tax to the basic rate.

He suggest that to offset that, rent would need to be increased by about 20%. If the effect of the rise in the stamp duty rate is taken into account the yield needs to be 6.1% which would require a rise of 25% in rents.

“The effects of the tax changes are clearly large. Generally rents would need to rise between 20% and 30% to offset them, more often than not rents need to rise by closer to 30%. The impact of the reduced tax deductibility of interest payments, which affects cash flows every year, is substantially larger than the impact of higher stamp duty, which effects cash flows only at purchase and is spread over the length of the landlord’s investment,” Miles explained.

“Of course not all rents would go up this much. Some buy-to-let properties are bought with cash or owned by basic rate tax payers, and for these landlords it is only the stamp duty change that would require higher rents. And part of the adjustment to the tax changes might come through lower house prices. But given the size of the private rented sector one should expect most of the adjustment to come through higher rents rather than lower house prices,” he added.

His report, which was written before the recent Housing White Paper which backs more homes to rent being built, also suggests that the current market places too much emphasis on home ownership.

“Aspiring first time buyers are hardly helped by squeezing the supply of rental property and driving rents up. We should want to avoid a situation where people feel pressurised into taking big mortgages relative to their income early in life because the rental option is so poor. A property market in which people in their 20’s borrow five or more times an inflated income at what are a currently very low interest rates, and then struggle a few years down the road, is something we should not want,” Miles pointed out.

“The view that owner occupation is a form of tenure that people should aspire to at the earliest possible point in their lives is deeply flawed. A tax change that reduces the incentive to supply rental property is entirely counterproductive. It should be abandoned,” he concluded.

The Residential Landlords Association (RLA) has found that a majority of landlords will be negatively impacted by the tax changes and wants the government to use the unexpected extra revenue from its stamp duty levy to halt the implementation of the mortgage interest changes, or at least apply it only to new borrowing for new housing.

“Professor Miles’ assessment proves that current tax policy will be counterproductive in making rents affordable and increasing supply to meet the growing demand. It is time for the government to think again,” said David Smith, RLA policy director.


Rents in the UK are set to rise significantly faster than house prices over the coming five years, property agents Savills report.

The agency forecasts that rents will increase by 19% between now and 2021, whilst house prices will only go up by 13%.

In the capital, this gap will be even more noticeable. Here, rents are set to go up by 24.5% whilst house prices increase by 10.9%.

As the main reasons count post-referendum economic uncertainty and weaker consumer sentiment. For the coming year, Savills doesn’t forecast an increase in house prices at all.

However, prices in the north are set to outperform by the end of the five year period.

Simultaneously, demand for rental properties will increase, as first-time buyers continue to struggle with affordability.

Here an overview of the Savills results:



Britain’s highest rental yields: the top 10 postcodes for buy-to-let


The huge rush to acquire buy-to-let property in the first quarter of the year ahead of the stamp duty change deadline at the start of April, after which a 3% surcharge was added for second homebuyers and buy-to-let investors, illustrated the growth in popularity of buy-to-let property as an attractive investment at a time of low interest rates and volatile stock markets.

The buy-to-let boom of recent years has fed the stereotype that Britons are obsessed with property. Ever since Margaret Thatcher declared her belief in a ‘property-owning democracy’ and introduced Right to Buy in 1980, the UK was converted into a country that saw houses as something to make money from, not just to live in.

Having long provided mega double-digit returns for investors, investment in buy-to-let has outperformed all major asset classes in recent years, with total annual returns from buy-to-let property hitting 12% in 2015 or £21,988 in absolute terms. But where are the best (and worst) rental yields currently achievable? 

The new TotallyMoney Buy-to-Let Yield Map highlights the UK’s buy-to-let hotspots providing both an interesting insight into the market and a useful tool for buy-to-let landlords.

The research, which analysed 137,955 rental properties and 303,822 properties that were marketed for sale online on the 1st of October 2016, reveals a clear geographical divide between the North and the South of the country with northern regions coming out on top and the South East showing particularly poorly.

Nine out of the 10 highest yielding postcode districts are in Scotland and the North/Midlands regions.

The 10 lowest yielding postcodes, with the exception of Edgbaston and Holland Park in Birmingham, are all in Greater London, the South East and the South Coast.

The winning postcodes:

  Postcode  Post Town  Coverage  Average Rent  Average House Price  Yield 
1 LS6 Leeds Beckett Park, Burley, Headingley, Hyde Park, Meanwood, Woodhouse £1,044 £116,115 10.79%
2 BD1 Bradford Bradford City Centre, Little Germany, Goitside, Longlands £552 £64,108 10.33%
3 YO1 York City Centre £1,876 £231,388 9.73%
4 PR1 Preston City Centre, Avenham, Broadgate, Deepdale £952 £125,810 9.08%
5 TS1 Middlesbrough Town Centre £523 £69,368 9.05%
6 L7 Liverpool City Centre, Edge Hill, Fairfield, Kensington £720 £99,114 8.72%
7 M3 Manchester City Centre, Deansgate, Castlefield £1,230 £177,546 8.31%
8 S1 Sheffield Sheffield City Centre £823 £118,861 8.31%
9 HD1 Huddersfield Huddersfield Town Centre, Hillhouse, Lockwood, Marsh £656 £101,536 7.75%
10 CF24 Cardiff Cardiff South, Rumney & Trowbridge £1,220 £192,548 7.60%

... and the losing postcodes:

  Postcode  Post Town  Coverage  Average Rent  Average House Price  Yield 
867 BR2 Bromley Hayes, Shortlands, Bickley, Bromley Common, Keston £1,300 £788,293 1.98%
868 N21 London Winchmore Hill, Bush Hill, Grange Park £1,339 £825,700 1.95%
869 HA6 Northwood Northwood, Northwood Hills, Moor Park £1,732 £1,103,645 1.88%
870 B15 Birmingham Edgbaston, Lee Bank £1,013 £656,412 1.85%
871 W8 London Kensington, Holland Park £4,920 £3,320,116 1.78%
872 RG8 Reading Goring, Streatley, Pangbourne, Whitchurch-on-Thames £1,225 £865,454 1.70%
873 N2 London East Finchley, Fortis Green, Hampstead Garden Suburb £3,764 £2,733,640 1.65%
874 BH14 Poole Lower Parkstone, Lilliput, Penn Hill £1,288 £1,000,795 1.54%
875 N6 London Highgate, Hampstead Heath £2,779 £2,418,305 1.38%
876 BH13 Poole Canford Cliffs, Sandbanks, Branksome Park £1,574 £1,668,641 1.13%

RLA Looking For Landlord Support On This Most Important Issue

Sadly, the legal bid to force a judicial review of the Government’s controversial Mortgage Interest Relief – or Tenant Tax - plans failed at the High Court.

But all is not lost. While Steve Bolton and Chris Cooper have confirmed they will not appeal the decision, we at the RLA are continuing to lobby at the very highest level to persuade the Chancellor to rethink plans to stop buy-to-let finance costs being a legitimate business expense.

The RLA has been campaigning since the proposals were first announced in 2015.  We have already met with Treasury officials to discuss the issue and have made a significant impact in Westminster.

There has been a surge of support from Tory backbenchers and we are continuing to campaign – asking that MIR changes be scrapped, or at the very least applied to new borrowing only, a move that will minimise the impact of these changes on established landlords. We have a further meeting with the Treasury scheduled and a round table meeting with Tory MPs ahead of the Autumn statement.

But we cannot do this on our own. It is vital that you contact your MP to explain the devastating impact that this unfair tax grab will have on you and your tenants.  You can also ask to meet you MP to discuss the issues face-to-face.

An RLA survey of landlords showed these changes will lead to higher rents for tenants, see repair and maintenance standards slip and stem the supply of PRS housing at just the time when demand is soaring. This is bad news for everyone involved and we need to let the Treasury know that.

We have updated our  template letter for all members to send to their MPs. Simply download it and use the empty box to talk about your own experience.

Or even better meet them in person.  And if you do see them, take a photo and 'tweet your meet'. Don't forget to tag @RLA_News and your MP, if they have a Twitter account. 

We need to spread the word to as many people as possible. Hundreds of landlords have already backed the campaign writing to and meeting with MPs and we are asking you to join them.

We need a last push ahead of the Autumn Statement. We need to hammer home to the Government just how devastating these changes will be and we need to stand together to oppose this unjust tax and fight for a fair deal for the PRS landlord.

Ireland’s decision to scrap buy-to-let tax is a warning to Britain


As the UK prepares to change the way landlords are taxed by scrapping the existing rules that permit them to offset all of their mortgage interest from property investments against tax, Ireland has announced that it is reversing its policy that prevented landlords from claiming full mortgage interest tax relief on rental income to help stop rents soaring out of control.


In his Budget statement made last week, Ireland’s minister for finance, said landlords would be able to claim 80% tax relief from next year, up from an existing level of 75%.


Tax relief will then increase by a further 5% a year until it reaches 100% again.


Noonan highlighted the fact that the policy, which is similar to the tax changes due to be introduced in the UK from April next year, was introduced in Ireland in 2009 to “rescue the public finances” but with investment in Ireland’s private rented sector falling now is an “appropriate time” to revisit it.


Around 44,000 basic-rate tax payers will be forced into a higher tax bracket from april next year once planned changes to landlord taxation comes in to force, according to the National Landlord Association (NLA).


The existing rules that permit landlords to offset all of their mortgage interest against tax will, from April 2017, be phased out, restricting the amount of mortgage interest landlords can offset against tax on their property investments.


By 2020, landlords will not be able to deduct any of their mortgage interest from their rental income before calculating their tax bill.


The changes to tax relief will make it harder to make a profit from letting property, which in turn could deter investment in the sector. 


Campaigners against the mortgage interest relief changes argue that Ireland’s change of policy demonstrates that the levy does not work.


Rents in Ireland have increased significantly since 2013, with recent figures from the Irish Residential Tenancies Board revealing that rents in Ireland have risen by almost 10% since last year.


Here in the UK, many landlords will have no alternative but to recoup their losses through higher rents, with tenants paying the price of the government’s tax-grab. 


Research conducted by Property118 earlier this year revealed how up to 4.6 million tenants could be affected by the now former chancellor George Osborne’s tax attacks on buy-to-let landlords. 



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