In Focus (2022, Qtr 3): Economic Influences and LGBTQ+ issues

Introduction

The Quarter 3 survey for 2022 collected responses from private landlords operating across England and Wales. Responses provide the NRLA with an insight into landlord confidence in the sector. The consultations provide gauge on how landlords may react to specific policy development and proposals. 

This consultation looks at: 

• Landlord confidence in England and Wales.
• Impact of interest rates and rising inflation on the PRS.
• How landlords are responding - and may respond in future - to specific tax policies and initiatives. 
• LGBTQ+ issues inside the PRS.

Landlord confidence

Whilst 2021 saw a sustained run of increasing confidence, 2022 has been the opposite. Confidence in England and Wales for Quarter 3 of 2022 was recorded at -27.6, marking a sharp fall from the previous quarter. 

• There are now twice as many landlords looking to sell property in the next 12 months as looking to buy property. 
• Confidence this Quarter represents the lowest national confidence recorded since Quarter 4 of 2020.
  • Landlords attributed low confidence to regulation change and increasing landlord costs. 
• Fewer landlords stated they had held rent levels constant from the previous year than ever before. 

Interest rates

A rising mortgage rate eats into a landlord’s rental income, forcing the landlord's decision to take a hit, push up rents or sell property. 

Recent interest rate increases mean many landlords are now paying much more in finance repayments. When the fieldwork was undertaken interest rates had risen from 0.25% at the start of 2022 to 1.75%. They are - at the time of writing this page - at 3.5%. If base rates were to rise to 5%, half of the landlords surveyed who have BTL finance stated they would become unprofitable. 

• The impact of higher interest rates is made even more difficult by the removal of Mortgage Interest Relief Section 24 legislation. 
• That many landlords may be forced to sell property to manage the financial strain will only heighten the supply issues in the PRS. 

Inflation

Alongside increasing mortgage interest rates, inflation is another factor which endangers landlords’ business models, feeds into low confidence, and threatens to break the PRS.

• Just 2% of landlords stated inflation had no impact on their lettings business. 
  • Increased maintenance costs and erosion of letting income were cited as the main impacts of rising inflation. 

The financial strain of higher interest rates coupled with pressures caused by rising inflation will force many landlords to review their business model.

• Reducing portfolio size and increasing rents may be the only steps landlords can take to get respite from the economic squeeze they are facing. 

Taxation, tax policy & landlords

More than one-in-five landlords now have a limited company structure for ownership of at least some of their portfolio. 

For many landlords who have BTL finance, the combination of rising interest rates and the abolition of Mortgage Interest Relief is having a big impact. As a result 40% of landlords who have BTL finances are increasing rents.  

On Capital Gains Tax, landlords are now sensitive to either future increases or future temporary decreases in the charge: ironically, the presence of the tax is keeping many landlords in the PRS-arena. CGT tax allowances have recently been reduced, but changes to the levels (bands) of tax, be that up or down, would have serious consequences for housing supply.    

Finally, landlords were asked what strategies they have deployed in preparation for future IHT bills. A surprisingly high proportion of landlords have decided to leave their heirs to deal with any IHT bill on their death. Evidence suggests this is not simply an age-based attitude. 

Again there are implications for PRS-housing supply in the long term if heirs are forced to sell rental property to pay IHT bills. 

Landlords, the PRS and LGBTQ+

Landlords were asked about their experience of LGBTQ+ tenants in respect of harassment, bullying and intimidation. 

Many landlords surveyed would benefit from easy to access resources on these issues. Many landlords do not have to hand a knowledge of expertise or established advisory services which tenants – and landlords – would find valuable.  

Nick Clay Research Manager

Nick Clay MSc, PgDip is the lead researcher for the NRLA. He previously worked for the RLA where he introduced the Landlord Confidence Index. Nick takes responsibility for the Research Observatory's content and rigorous approach to data analysis. He is a Certified Member of the Market Research Society.

Nick was formerly a Senior Economist for a multi-national consultancy. He has expertise in business support and entrepreneurship. He has written academic research, undertaken evaluations and developed strategies for business support organisations across England & Wales.

See all articles by Nick Clay