Taxing Times Ahead

We keep hearing how landlords are fleeing the market, and as such, there is a rental property supply crisis

Landlords are down, tenants are up and frankly, there’s not enough properties on the market to stem the flow. Good for the landlords left… on paper. 

However, recent analysis by Capital Economics highlighted that a reinstatement of mortgage interest rate relief could add 110,000 properties to the market (and raise up to £400 million) which may balance out the playing fields once again. 

This would be an about-turn on the introduction of the Section 24 regulations, which were introduced by George Osborne in 2015. They removed the landlord’s right to deduct mortgage interest from their rental income before calculating their tax liability, a highly controversial decision amongst the PRS at the time. 

The changes were brought in to help boost home ownership levels and put a dampener on the growth of the private rented sector.

The intention was to keep home ownership levels high and slow the growth of the private rental sector (PRS). Admirable in theory, after all, encouraging homeownership is a positive thing (generally speaking) however with the country’s finances as they are, home ownership is a distant dream for many, and the PRS is vital for thousands of households. 

The research also uncovered data that revealed that if the base rate remains above 2.5% for the next four years (which has been predicted), around 735,000 more properties will become unprofitable, a further hit to the already strained market. 

With landlords throwing in the towel, it will only mean one thing to tenants – increased rents as remaining properties become rarer than hen’s teeth – and there’s bad news for HMRC too, they’re looking at a loss of about £1 billion in landlord tax revenue

What will happen next remains to be seen, but people are starting to stand up and make their voices heard on this matter. Over 40,000 people have signed a parliamentary petition calling for a reinstatement of mortgage interest relief, and with the potential hit in the government’s pocket looking inevitable, it will be interesting to see how it plays out… 

Hope springs eternal for sellers

On a slightly more positive note, the appearance of the sun (finally!) this month seems to have finally blown away the wintery cobwebs for anyone looking to sell their property. 

Historically, early spring is the best time to start advertising your property for sale. The minute the first daffodils pop their heads up, people start to think about their next move. But, just like the warmer weather, for anyone looking to sell up, it has been a slow start to the year. However, according to Rightmove, May saw average asking prices creep up by 1.8% (around £6,650), a contrast to the frankly miserable predictions made at the start of the year, which had the UK housing market facing a 15% crash by mid-2024.

Tim Bannister, director of property science at Rightmove said: 

One reason for this increased confidence may be that the gloomy start-of-the-year predictions for the market are looking increasingly unlikely.

Buyer demand was 3% higher in May 2023 than in May 2019 and, despite interest rate hikes, mortgage rates have been stable on a week-to-week basis.

It may have taken the sun a bit longer to pee through the clouds, gardens a bit longer to bloom (and hayfever a bit longer to come into force!), and flip flops a bit longer to make an appearance – but they all got there in the end. And it would seem the property market is working on the same basis. Fingers crossed for a long and prosperous summer with no more stormy times ahead!

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