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Why are rents so high?

BY Ned Browne

17th Mar 2023 Property

Why are rents so high?

Rising rents are the cause of a lack of landlords and rental properties. Who’s to blame and how can this be fixed? 

In 2021, I wrote an article explaining property price rises during the pandemic. To most observers, it was government interventions, such as the COVID stamp duty “holidays”, that caused the rise in prices. Could the government also be responsible for rising rents? 

The demise of the landlord 

Being a landlord is no longer profitable
Various new laws make it increasingly difficult to make a profit as a landlord

High demand for rental properties coupled with a dwindling number of those properties has led to rocketing rents. But why has the number of rental properties fallen? Where have all the landlords gone? 

The story goes back to 2015 when the then-chancellor, George Osbourne, announced some changes to the Buy-to-Let tax laws. Landlords used to be able to claim tax relief on interest payments—but between 2017 and 2020 this tax relief was gradually reduced from 100 per cent to zero. It’s worth noting that almost all other businesses can still offset interest payments—but that’s no longer the case for landlords. 

"70,000 landlords exited the UK market in the last year"

Since April 2016, landlords must also pay an additional three per cent stamp duty surcharge when they buy a property. Plus, landlords can no longer claim an allowance for “wear and tear” against rental income. Other regulations have also pushed up landlord costs. 

These and other factors have made being a landlord far less appealing. A recent analysis of HMRC data by chartered accountants UHY Hacker Young showed that 70,000 landlords exited the UK market in the last year and that the number of properties available to rent dropped by 116,000. No wonder tenants are now regularly bidding well over the asking price just to secure a place to live. 

Tip of the iceberg 

Mortgage interest rates continue to rise
Mortgage interest rates continue to rise rapidly

Worse still, the landlord exodus may have only just begun. Mortgage interest rates have risen rapidly after the now infamous “mini-budget”. This could be the nail in the coffin for more landlords, who may now find it impossible to make a profit. Unfortunately, this is a highly likely scenario, and rents will most likely rise even further. It’s a lose-lose situation.  

Forced to sell 

Worse still, some landlords may find it impossible to remortgage their properties, forcing them to sell. This further undermines the security of tenants, many of whom already find themselves having to move frequently.

"Some landlords may find it impossible to remortgage their properties, forcing them to sell"

And, in 2025, additional energy efficiency rules are due to come into place, which will force many landlords to sell if they can't cover the cost of upgrading their properties. 

Love them or loathe them 

Rising taxes create difficulties for landlords
It's growing taxes, not greedy landlords, causing rising rents

Landlords are sometimes presented as pariahs, often unfairly—they do, after all, provide an essential service. And for years they have been treated as tax cash cows.  

Next time you read about rising rents, remember this: it’s not greedy landlords who are to blame, it’s the greedy taxman. 

Good news 

But the good news is this: the government helped cause this mess. That means that they can sort it out too. If the tax burden on landlords is reduced, the number of properties will increase, and rents should start to fall. It’s that simple.

"If the tax burden on landlords is reduced, the number of properties will increase and rents should start to fall"

Perversely, the government’s total tax take might increase too (as the number of taxable rental properties would increase). This will take political will and fortitude. Here’s hoping this still exists in the corridors of Westminster. 

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