Is this the end of the private landlord?
There has been a sharp divergence in the attitudes of private and professional landlords as new regulations continue to upend the sector, according to new data.
While private landlords continue to become more negative – and threaten to leave the sector in droves – professional landlords are, dare we say, genuinely optimistic about the prospects for the UK’s rented sector.
A combined 80 per cent of professional property investors expect an increase in the value of their portfolio in the next year, according to new research from Handelsbanken shared exclusively with City PM.
While 16 per cent plan of professional investors plan to withdraw from houses and 17 per cent plan to withdraw from flats, a third of private landlords plan to withdraw in the next year.
The rental market is undeniably tough, with inflation, high interest rates and regulation stretching yields ever-further, but recent changes have affected private landlords far more than professional landlords.
Crucially, private landlords are only able to deduct 20 per cent of their mortgage interest from their rental income when calculating their tax bill, down from between 40 and 45 per cent in 2017.
This became a particularly acute issue after the outbreak of war in Ukraine, when interest rates and mortgages rocketed.
Private landlords must also pay personal income taxes on their rental taking, versus the much lower rate of 19 per cent -25 per cent professional landlords pay.
The Renters’ Rights Bill
No recent development better exemplifies the stark difference between private and professional property investors than the Renters’ Right Bill.
Last week, the UK’s biggest landlord Grainger pointed out that while the bill will “professionalise the rental market and raise standards”, smaller landlords will “find the new regime challenging and will therefore accelerate their exit from the market, further constraining supply”.
The bill is set to increase the complexity associated with being a landlord, and give more weight to tenants over landlords with respect to the right to occupancy.
It also adds the ‘Apply the Decent Homes Standard’ to the private rented sector, which aims to provide renters with “safer, better-value homes and remove the blight of poor-quality homes in local communities” but will put a substantial weight on landlords.
“[Proposals in the bill] continue to cause widespread concern as to the viability of landlords continuing to operate within the private rented sector,” Nathan Emerson, CEO of Propertymark, said.
“Reports show that 88 per cent of landlords have no confidence in the current private rental sector due primarily to the bill itself and more than a third plan to leave the sector altogether this year,” he added.
Handelsbanken’s survey, meanwhile, found that only 12 per cent of professional investors thought the bill would have a negative impact on the market.
“There’s a danger this Bill will be the straw that breaks the camel’s back for many across the sector,” Oli Sherlock, Goodlord’s managing director of insurance, said.
“Without serious action to address these concerns, we could see a landlord exodus when the new rules are introduced.”