The Intermediary Mortgage Lenders Association (IMLA) warns in its latest report that ongoing regulatory and tax changes, coupled with the recent sharp rise in buy-to-let mortgage rates, are putting private landlords at risk of business failure.
Such an event could negatively impact the Private Rented Sector’s (PRS) long-term health due to the current supply-demand imbalance.
In a typical buy-to-let purchase today, landlords at the higher tax rate face a marginal tax rate of 240%.
The report underscores that these pressures, coupled with the expiration of current fixed deals and the likely substantial rate hikes, will push rent prices up.
For years, private landlords have grappled with a growing burden of regulatory and tax changes, incrementally increasing their operational costs.
However, the sudden sharp rise in buy-to-let mortgage rates now threatens to render many landlords’ business models economically unviable.
“Despite no evidence of a mass exodus from the PRS, losing any rented properties will likely cause long-term rent increases, negatively affecting tenants,” says the report.
The report outlines several factors increasing the operating costs, including the mortgage interest tax deduction restriction for landlords to the basic income rate in 2015, reduction of capital gains tax for other assets but not residential property in 2016, and ambiguity surrounding enhanced energy efficiency standard proposals.
The IMLA report found that landlords seeking new deals have experienced a 75.7% average jump in monthly interest payments over the last year. With most landlords on low fixed-rate loans, interest rate payments will inevitably rise in the upcoming months as they reach the end of their current fixed deals.
This looming financial burden will apply additional pressure on rent prices, which have not kept pace with inflation in recent months.
IMLA executive director Kate Davies said: “The PRS serves approximately 4.6 million households, equivalent to 11 million people, and represents about 19% of the housing market. Maintaining the sector’s health is therefore essential if we are to manage the UK’s chronic housing shortage.”
Davies calls for a balanced approach: “While measures to increase tenant protections are crucial, the focus should now shift towards promoting increased investment in the sector and supporting landlords, whose operating costs are at risk of becoming unaffordable.
“If the balance isn’t achieved, higher rents and lower property availability will be the end result – a scenario detrimental to both tenants and landlords.”
