State of the PRS- 2017, Quarter 3

The past two decades have seen the rapid development and growth of the private rented sector in the UK. Between 2001/02 and 2011/12 the sector has doubled in size and now accounts for 20% of households in England (MCHLG, 2018). The Government are implementing major changes to the taxation of the private rented sector, including changes to mortgage interest relief. This report builds upon previous research into the experiences of landlords and their attitudes toward the future. The present study reports the findings from 3,289 responses to a longitudinal research project consisting of quarterly surveys of private landlords.

Key findings

1. The changes to Stamp Duty Land Tax with the 3% levy for private landlords is inhibiting further investment in the private rented sector. 69% of landlords reported they were discouraged from purchasing further rental properties due to the 3% levy. This is despite the need for 1.8 million additional rented homes to meet demand (RICS, 2016).
2. The current study found that a majority of landlords (70%) reported that the changes to mortgage interest relief would reduce their profitability as a business, with 62% of landlords reporting this would reduce their profitability by at least 20%.
3. To mitigate the negative impact of these changes, the majority of landlords (67%) reported they would increase the rents.
4. 63% of landlords reported that tax relief on longer-term tenancies would encourage them to offer a longer-term tenancy (3 years minimum)
5. Landlord confidence in the sector is dropping, and is now down four percentage points on the previous quarter. At the same time, the proportion of landlords that have sold properties has increased by four percentage points. This could mean a reduction in properties to rent, increasing competition and putting upward pressure on rents.
6. 50% of landlords plan to increase rents in the next 12 months, with 43% of landlords reporting this was due to the tax changes. These findings overall show that landlords are planning to adjust their investment and make business decisions to mitigate the negative impacts of these changes, with either higher rents or reduced portfolio sizes. The consequences of these changes do not help tenants; rather they put additional pressure on tenants through increased rents and fewer homes to rent.

Key recommendations

Following the findings of this research, a number of key policy recommendations were identified. These are in brief the following:

1. Reverse the proposed tax changes to private landlords. This would encourage further investment in the sector and help bring additional properties to rent.
2. Remove the 3% levy on Stamp Duty for private landlords. This policy change would encourage professional landlords to invest in further properties to rent and would increase competition between landlords, helping to improve standards and affordability of the sector.
3. If the Government would like to encourage further stability for tenants and longer-term tenancies, providing tax relief could be a suitable policy to support these behaviours.

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