Rental market loses 116,000 buy-to-let properties in the last year – contributing to rising rents

Publication featured in: The Times

The UK residential market has lost 116,000 buy-to-let properties in the last year, with the number of rental homes dropping from 4,579,000 to 4,463,000*. 

70,000 buy-to-let landlords have exited the market in the last year, with the number dropping from 2.82 million landlords in 2020 to 2.75 million in 2021. 

The large number of buy-to-let landlords exiting the market is partly due to the substantial increases in tax levied on the sector.   

Landlords could previously deduct finance costs, like mortgage interest, from their earnings to reduce their income tax. However, the Government changed this rule in 2017, gradually reducing the amount landlords could deduct from their rental income until this reached 0% in 2020.

This means many landlords will pay more tax on their property income. With all rental income now having to be declared, landlords may find themselves pushed into a higher tax bracket. Landlords with small profit margins might even end up losing money after paying tax.

The Government has also reduced the ‘wear and tear’ expenses landlords can deduct from their rental income. Previously, landlords could claim a deduction worth 10% of their rental income each year, but from 2016 they have only been able to claim for the actual cost of replacing furnishings.

Landlords also saw a cut to Private Residence Relief in 2020, which increased the amount of Capital Gains Tax they must pay when selling a rental property that used to be their main home.

Buy-to-let purchases also incur a 3% Stamp Duty surcharge, which has contributed to the decrease in rental properties by reducing the number of new landlords entering the buy-to-let market.  

We have seen an increasing number of landlords selling off or reducing their portfolios over the past year. Less favourable tax treatment has encouraged this exit from the sector, as well as dissuading newcomers from entering the market.

Reducing the number of properties for rent by driving landlords out of the market doesn’t benefit tenants as it adds to the upward momentum on rents.

The decrease in available properties has led to increased competition amongst renters. Landlords who have managed to stay in the market have benefitted from rising rents as a result of this excess of demand over supply. 

In the UK, rental prices have increased by 15.2% over the past five years.** If a shortage of properties continues, rents can be expected to rise further – especially in London where demand for rental properties jumped 81% in 2021/22.***

* Number of properties listed by buy-to-let landlords on their tax returns. Source: HMRC
** Source: Office for National Statistics 
*** Source: Rightmove, year ending March 31 2022

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