The Changing Climate of the Private Rental Sector

The Changing Climate of the Private Rental Sector

What the Future Holds for Private Rentals

In recent years, the private rental sector has had some major regulation changes. These changes are worrying for landlords and could cause people to view the buy-to-let market as a less profitable sector.

The PRS is a large sector with 1.75 million landlords in 2013-2014. The earnings during this time were 14.2 billion (HMRC). These figures could all change with the new rules and regulations.

One major change that came into effect on 6th April 2017, was the reduction of mortgage interest relief that can be claimed by landlords. Previously landlords could deduct 100% of their mortgage interest from their rental income, before assessing the amount of tax due. With this new tax regulation, the amount of mortgage interest that can be deducted will be gradually reduced to 0% over the next four years and then will be replaced with a 20% tax credit.

private landlord using calculator

The reductions are as follows:
• 2017 – 75%
• 2018 – 50%
• 2019 – 25%
• 2020 – 0%

This means that over the next few years many landlords could end up with increased tax bills and fewer profits. Some landlords could even make a loss. This could lead to landlords increasing their rents to make up for the loss of income. This would be bad news for tenants who may struggle to afford the rent and will thus find it more difficult to save up to purchase a house.

In addition, this new regulation may cause many landlords to sell up as they will no longer see buy-to-let as a good investment opportunity. Others may cut down their portfolios and avoid buying new properties. Potential landlords could also decide not to pursue this path due to the change. This result will be damaging as there is high demand for renting and the UK needs as many rental properties as possible.

On top of this in April 2016 a stamp duty surcharge of 3% was introduced for buy-to-let properties, and the banning of tenant fees was announced in the 2016 Autumn Statement. This again means extra costs for landlords, which could lead to the same results as above.

A landlord association has found that there was an increase in landlords selling their properties from February to March this year. An average of three landlords sold their properties per letting agent in February, compared to four in March. This shows that since these changes have been announced and/or introduced there has been an increase in landlords selling their properties.

landlord looking at buy to let house for sale


With tax changes leading to fewer landlords, and more demand for renting due to unaffordable housing, the Build-to-Rent scheme has been found to be rising to cater for this demand.

The Build-to-Rent scheme was launched by the government in 2012 to provide people with newly built, modern, privately rented properties. Under this scheme, housing developments are built with the sole intention of renting out all the properties. Institutional investors develop and own the properties, meaning they will gain the steady rental incomes once they are rented out.

The government has a 1-billion-pound fund to invest in B2R developments to help investors with building and management costs. Over 13000 B2R properties have been developed since 2012, with another 56,500 homes underway or in the planning stages.

buy to let apartments

Why is Build-to-Rent on the rise?
• More demand for renting from millennials
• More landlords selling up due to tax changes
• Trying to provide part of the solution to the housing crisis
• Attractive to big investors who want a constant stream of income e.g. insurers, charities, pension funds

Benefits for Tenants
• New build property
• Designed with renters in mind
• Some developments will have concierge, communal areas, and maintenance staff
• Longer tenancies available
• More freedom as many developments allow pets, painting walls, hanging pictures
• More professional renting process

Cons for Tenants
• Developments are mainly in city centres
• The majority are apartments
• Rent may be higher due to new build and additional amenities

Private Rentals and Build-to-Rent

landlords rental property

Although B2R will not solve the housing crisis it is a step in the right direction. It provides renters with more choice of quality accommodation which is desperately needed, especially with an increasing number of landlords selling their properties.

We hope the recent PRS changes do not put too much strain on landlords, and that they are still able to retain their properties and make a profit. As if this does not happen we could see increasing rents and a lack of rental properties on the market.

Financial Times
The Guardian

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