As a property expert in the UK market, I’ve seen first-hand the impact of the challenges that landlords have faced over the years. These challenges have ranged from changes in tax law to stricter regulations. All have had a significant impact on the profitability of buy-to-let investments.
In isolation, it’s easy to see each change as something manageable, but cumulatively they represent a major toll. Calling this an ‘ongoing battle’ might seem to someone outside the sector as overkill. If you’ve been dealing with it, year after year, it’s not. What’s more, these changes don’t just affect landlords, but have an effect on the entire property rental sector, every stakeholder within it and indeed the entire housing market.
Let’s start in 2015 …
3% Extra Stamp Duty on Additional Purchases (2015)
In 2015, the UK government introduced a 3% surcharge on stamp duty for additional property purchases. This was a major blow for those landlords looking to expand their portfolios. The surcharge made it more expensive to buy rental properties, and reduced the amount of profit that landlords could make from their investments.
BoE Tells Lenders to Increase Criteria for Borrowing for BTL Mortgages (2017)
In 2017, the Bank of England (BoE) told lenders to increase the criteria for borrowing for buy-to-let mortgages. This meant landlords would need a larger deposit and a higher income to qualify for a mortgage. The stricter lending criteria made it more difficult for landlords to get financing for their investments and pushed up the cost of borrowing.
CGT for Landlords Who Sell More than 9 Months After Moving Out (2019)
In 2019, the UK government introduced a Capital Gains Tax (CGT) charge for landlords who sell their properties within nine months of moving out. This charge was designed to discourage landlords from buying and selling properties quickly for a profit. The CGT charge made it more expensive for landlords to exit the market, and it also reduced the potential returns from buy-to-let investments.
Tax Relief Withdrawn for Landlords (Section 24) (2021)
In 2021, the UK government withdrew the tax relief that landlords could claim on their mortgage interest payments. This reduced landlords’ profits by an average of £3,000 per year. The loss of tax relief made it more difficult for landlords to make a profit from their investments. Some decided to sell up.
Tougher Landlord Licensing Schemes (2022)
In 2022, the UK government introduced tougher landlord licensing schemes in some parts of the country. These schemes require landlords to meet certain standards in order to rent out their properties. The stricter licensing requirements have made it more expensive for landlords to operate and have reduced the number of properties available for rent.
That’s a quick recap. Here’s what’s happening now …
Renters Reform Bill (2023)
The Renters Reform Bill is currently making its way through Parliament. If passed, the bill will introduce a number of changes to the private rental sector. These changes include giving tenants more rights, making it easier for them to challenge unfair practices, and banning no-fault evictions. The bill is likely to make it more difficult for landlords to manage their properties and evict tenants.
And this is the pipeline …
EMPC Minimum Standards (2028)
From 2028, all rental properties in England will be required to meet minimum energy performance certificate (EPC) standards. Landlords will need to make improvements to their properties in order to meet the new standards. The cost could be significant for landlords, and it could also reduce the amount of profit that they can make from their investments.
Implications for the Future of the Private Rental Sector
These changes have already resulted in a significant reduction in the profitability of buy-to-let investments. Some landlords have sold their properties, others have chosen to invest in other areas. In addition, the government’s continued focus on improving renters’ rights and increasing regulation is making it more difficult for landlords to operate. And, of course, landlords are facing the same cost of living pressures as everyone else. Energy bills are higher, repairs cost more, all the essentials like insurance and gas safety checks have become more expensive.
Landlords are leaving the sector, reducing supply. Mortgage interest rates mean fewer people can afford to buy, increasing demand. Tenants are staying in rented accommodation for longer periods. Everything is contributing to rising rent.
It is still possible to be a successful buy-to-let landlord if you’re adaptable, proactive and well-informed. Choosing the right property in the right location and continuing to offer high quality accommodation may ensure success, but the situation remains uncertain. What landlords need is some recognition of the crucial role they play in housing. The UK also needs an increase in the supply of rental properties, but it’s unlikely we’ll get that unless some of the rules are modified to encourage the small scale private landlord to stay in the sector.