Government must stop demonising landlords and start nurturing buy-to-let

Industry response to last month’s Budget announcements can perhaps best be described as muted. There was relief in most quarters that the much-trailed concept of a 99% loan-to-value mortgage for first-time buyers did not come to pass, but disappointment (if not surprise) that Jeremy Hunt neglected to offer more simple support for first-time buyers, which he could have done by making the current Stamp Duty concessions permanent, for example.

Another disappointment was the failure to offer any meaningful encouragement to buy-to-let landlords. The 4% cut in Capital Gains Tax (CGT) the Chancellor did announce on the sale of residential property for higher and additional rate tax payers is likely to cut little mustard, particularly given that the CGT allowance is set to fall from £6,000 to £3,000 next month.

The buy-to-let sector has demonstrated remarkable fortitude in recent years, and a widely rumoured ‘exodus’ of landlords has simply not happened, at least yet. But research IMLA carried out in December 2023 revealed some interesting truths about buy-to-let investors, which should give the government pause for thought.

The IMLA Landlord Survey reveals a market predominantly supplied by small businesspeople who will struggle to break even in the next two years, with their cost of borrowing soaring by an anticipated 80% as they refinance off historically low fixed rates. The research also found that most landlords do not have significant resources to draw on outside their rental business. On average, landlords’ non-rental income is roughly in line with tenant income, except in London where tenants earn substantially more.

Changing the narrative

IMLA believes that its time to change the narrative about greedy, exploitative buy-to-let landlords. It’s time the government acknowledged the crucial role buy-to-let investors play in the Private Rented Sector (PRS) which provides homes for almost 20% of the UK’s households – more than the social rented sector.

Of course, there is a minority rogue element, but focus should be concentrated on drumming the few bad eggs out the market, while supporting the many good providers who care about their tenants, while attempting to run a viable business.

Buy to let is the only small business sector in the UK which is taxed on turnover rather than profit. And that needs to change. If more landlords exit this market, the result will only be a reduction in the supply of rental property, and further upwards pressure on what are already record rents.

There are tough times ahead for all parties in the PRS, and it is in everyone’s interest to understand the pressures involved. Genuinely easing the tax burden on landlords wouldencourage them to remain committed to the sector, and shaving a bit of CGT off the bill for those already selling up will not achieve that end. 

In the near future, IMLA would like to see a review of the changes to mortgage interest relief and the additional 3% Stamp Duty charge to support landlords in continuing to provide the homes we so desperately need. In the long run, of course, the only way to overcome the housing shortages which plague our country is for the government to commit to supporting an ambitious, sustainable programme of housebuilding, for social and private rental and purchase. Sadly, neither seem to be a priority at this point in the political cycle.

Kate Davies, Executive Director, Intermediary Mortgage Lenders Association (IMLA)