When Chancellor Jeremy Hunt gets to his feet on Wednesday to deliver his Autumn Statement, he should consider offering support to both tenants and landlords, according to one PRS expert.

While rising rents caused by supply shortages have hit tenants hard – especially those who rely on the Local Housing Allowance (LHA) – many landlords have in turn had to cope with increased interest charges on buy-to-let mortgages, which some claim have rendered their rental properties unviable.

 

Neil Cobbold, managing director of automated rental payment and client accounting specialists PayProp UK, said: “There are tenants and landlords struggling in the Private Rented Sector (PRS) who require swift and specific measures from the Chancellor.

“The Local Housing Allowance has not been increased since April 2020. And last year, the Government confirmed that the current freeze on housing benefit payments would continue into 2023/4.

“According to the Institute for Fiscal Studies, rents in the PRS have increased by more than a fifth since the freeze and, as at June 2023, on average only 5% of rents can be covered by the LHA.

 

The most vulnerable

“Additionally, there is a tremendous shortage of homes to rent in the social housing sector. This has left thousands of families in England struggling to find an affordable property. These are people on the lowest incomes and who are the most vulnerable. Thanks to the LHA freeze the PRS has become too expensive, and on the social housing side, the cupboard is bare.”

 

There are also serious implications for some tenants once the government is satisfied with the progress of reforms to the court system and Section 21 is abolished.

“Low-income tenants who are evicted under Section 8 due to rent arrears will find it almost impossible to find another rental property in the private sector as only 16% of landlords would be willing to rent to a tenant with a history of rent arrears according to the latest English Private Landlord Survey. As things stand, the only immediate alternative would be temporary accommodation, which is hugely expensive for local authorities.

“It’s a question of where the Government wants to spend the money. Do they want to raise the LHA rate to a realistic level? It would make a significant difference and it is long overdue. Or will we see a future increase in the cost and volume of temporary accommodation?”

 

Supply issues

One long-term way to bring down rents is to build more homes, but that must not lull the government into ignoring the short-term supply issues facing the sector.

While some landlords are retiring and selling their properties to fund it, others who continue as landlords are facing high mortgage costs, increased regulation and a heavy tax burden, which may put them in an untenable position.

Currently, all rental income made from a property is taxed – landlords can partially claim back mortgage interest costs, but only up to the basic tax rate of 20%.

 

“Many have called for the abolition of Section 24, but it seems unlikely that the Chancellor is going to consider it this time around – even though it creates an incentive for higher-rate tax-payer landlords to incorporate their properties as a way to claim mortgage costs as an expense and pay corporation tax at 25%, rather than the 40% or 45% personal tax rate on their rental income. As a result, some landlords are now selling their properties.

“A measure the government could consider is extending the first-time buyer’s Stamp Duty Land Tax relief to tenants who don’t own a home and have been renting for more than 12 months, to prevent wealthy buyers renting for a few months to take advantage. This could encourage tenants who have previously owned or inherited property and subsequently sold it, or who have married someone who previously owned property to take advantage of the tax saving and consider buying instead of renting. The resulting reduction in demand for rental properties could also help cool rent price increases for other tenants.”

 

Stimulating sales while retaining stock

“Another measure the Chancellor could introduce, to ensure as many PRS properties as possible remain in the sector, is to incentivise landlords that need to reduce their stock to sell to other PRS landlords.

“To achieve this, the Chancellor could reduce Capital Gains Tax for landlords who sell their properties to other landlords who commit to keeping it in the PRS for a fixed number of years.

“A measure like this would also stimulate the sales market to some degree, but the main advantage would be in retaining as many properties as possible in the rental market.

“What we don’t want to see is an influx of owners shifting properties to holiday lets, second homes or keeping them empty for asset appreciation.”