In an effort to address the ongoing housing crisis, Capital Economics, a prominent research consultancy, has proposed the abolishment of the existing tax increase on private landlords. This move could potentially benefit both renters and the UK Treasury.
Over the past two years, the mortgage interest tax relief (MIR) for landlords has been restricted to the basic rate of income tax. A recent study conducted by Capital Economics for the National Residential Landlords Association (NRLA) contends that fully restoring MIR for the private rental sector could significantly mitigate the current shortage in supply.
The study revealed that if the Bank of England’s base interest rate were to peak at 5% and stay above 2.5% until 2027, as is widely anticipated, as many as 13% (735,000) of private rented properties across the UK could be lost compared to 2021. This could lead to an annual loss of £1bn in Income and Corporation Tax revenue for the Treasury.
Reintroducing MIR, Capital Economics projects, could save 110,000 properties from leaving the private rental market, while generating an additional £400m in Income and Corporation Tax for the Treasury.
In addition, the study suggests that the abolition of mortgage interest reforms might curb future rent inflation within the sector, thereby alleviating financial strain on landlords planning to undertake maintenance and improvements.
The NRLA has urged the government to conduct a comprehensive review to assess the effect of recent tax increases on the sector. The suggested review should take into account the impact MIR changes have had on the availability of private rented housing and the cost of accessing such accommodations.
NRLA Chief Executive Ben Beadle noted, “In 2015, the government expressed its intention to ‘create a more level playing field between those buying a home to let and those buying a home to live in’. However, it has inadvertently increased costs for responsible landlords and neglected the ensuing financial burden on renters.”
“In the midst of an unprecedented cost-of-living crisis,” Beadle stated, “the government needs to prioritise economic reality over political pride and reverse this misjudged reform.”
Beadle continued, “The tax increase on landlords, compounded by rising interest rates, has worsened the supply crisis. And as the research suggests, improvement is improbable until this policy is reversed. A radical rejection of these detrimental policies is necessary to counter the loss of rental properties, curb rent increases, and augment Treasury revenue.”
