Mark Barlow
If you thought the pressure on landlords might ease, think again.
Hot on the heels of the regulatory shake-up we covered in February (Resources | Equilibrium), the latest warning from the National Residential Landlords Association (NRLA) suggests the next wave of change is already feeding through. As is so often the case, it is unlikely to stop with landlords and it might be tenants who feel it most this time.
From April 2027, income tax on rental income is set to rise by two percentage points across all bands, with new rates of 22%, 42% and 47% applying to property income. This marks the first time rental income has been taxed differently to earnings, reinforcing a clear shift in how the government views property investment. (1) [finistry.co.uk]
On paper, a 2% increase does not sound dramatic but in reality, within a sector already dealing with higher borrowing costs, tighter rules and increasing compliance, it adds to a growing list of pressures.
Landlords are already responding
Recent polling by the NRLA found that around 46% of landlords are planning to increase rents in anticipation of the tax rise. More than a third expect to increase rents by more than they previously intended, while a similar proportion are considering selling properties altogether. (2)
As explored in the previous article, the landscape has shifted significantly. What was once a straightforward commercial investment has become something far more complex. The Renters’ Rights Act has altered the balance between landlord and tenant, removing long-standing protections such as fixed-term certainty and introducing new layers of process and administration.
At the same time, landlords continue to absorb the legacy of earlier tax changes, from reduced mortgage interest relief through to higher stamp duty and stricter lending conditions.
Rising interest rates only intensify the pressure as margins are being squeezed from multiple angles.
For many, there are only three options; absorb the cost, increase the rent, or exit the market. For those with smaller portfolios or tighter margins, absorption is not always realistic which leaves a choice between passing costs on or stepping away altogether.
Signs of the latter are already emerging with industry commentary by Bloomberg suggesting buy to let investors are beginning to exit, with the overall environment becoming less attractive year by year.
The challenge is what happens next as demand for rental property has not disappeared. If anything, it remains strong and if supply tightens as landlords sell up or hold back from investing, the imbalance only grows. When demand outstrips supply, prices tend to move in one direction.
This is where the policy conversation becomes more complicated. Measures designed to improve conditions for tenants may, indirectly, make life more difficult. Increasing the cost of providing rental housing does not make that housing cheaper, it makes it scarcer or more expensive, or both.
None of this is to say change is not needed, as the sector has undoubtedly required reform in areas to shed the ‘fat cat landlord’ reputation, who charge the earth for relative squalor due to unprecedented demand.
For landlords, the days of semi-passive ownership are fading fast as they need to be more engaged due to the renters rights, and what was previously a nice sideline looks likely to become a significant time, money and effort drain. For tenants, the risk is that these changes simply feed through into higher rents and reduced choice.
For policymakers, the question remains the same as before.
If private landlords step back, who steps in to meet the demand?
If you are reviewing your options for your property portfolio or have any questions, we are always happy to help. Please call us on 0161 486 2250 or speak to your financial planner to explore the right approach for your circumstances.
