Impact of proposed tax changes and Government Reforms on the Lettings Market

With numerous landlords reassessing their portfolios amidst anticipated tax changes and reforms, the private rental market faces potential disruptions in the short to medium term, particularly due to a proposed hike in Capital Gains Tax (CGT) and Renters’ Reform Bill (RRB). Members from The Guild of Property Professionals expressed how these changes could potentially impact the UK’s rental sector. 

Capital Gains Tax increases could lead to Landlord exodus

Edward Chelton Brown, Managing Director of Chelton Brown in Northampton, notes that smaller landlords, often those with just one or two properties, are considering selling due to the looming CGT increase. “We are seeing smaller, often accidental landlords selling their properties. In the short term, we expect to see some landlords exiting, leading to a reduction in rental stock. However, this may create a market correction where lower property prices attract new investors,” says Chelton Brown. Larger portfolio landlords, with more financial resilience, appear to be taking a cautious approach, choosing to wait for greater clarity on the government's tax plans before making any major decisions.

In London, Jason Werter, Managing Director of Living Residential in West Hampstead, reports that the proposed CGT increase is already pushing landlords to offload properties. "This tax hike could be the final straw for many landlords. While those with properties in Limited companies seem to be holding firm, others are looking to exit," Werter states.

Lisa Hunt, Residential Director of Maguire Jackson in Birmingham, a market that comprises some 70% of stock is owned by private landlords, comments: "The feedback we are receiving is that the pipeline of the anticipated legislation coming forward, from Capital Gains Tax to the Rental Reform Bill is encouraging Some landlords are rethinking their property ambitions, especially those smaller, more recent investors with portfolios of one to three properties.” 

Hunt adds: “While landlords are commenting on the RRB, we have yet to see this having any significant impact on demand or indeed supply. The Birmingham City Centre rental market remains robust with high levels of interest for well-presented properties. The evidence currently is that the increased supply of stock for sale in being absorbed by an increase in first time buyers encouraged by falling interest rates. This supply is being replaced by the increasing amount of institutional Build to Rent stock coming forward,” says Hunt.

Rent rises and supply shortages expected

Anita Lovell, Owner of Results Estate Agents in Rothwell, predicts a reduction in rental stock and a consequential rise in rents if landlords leave the market. “With fewer properties available, landlords can charge premium rates. Additionally, landlords may become less willing to accept short-term lets, fearing difficulties in evicting non-paying tenants, as the court system remains under pressure,” she adds.

Spencer Bullard, Managing Director of Abode Town & Country Properties in Royston, echoes this sentiment, noting that 6% of his landlords have already started selling. He warns that further tax increases could exacerbate an already difficult situation, especially as immigration rises and financial returns for landlords diminish, leading to higher rents and more supply shortages.

Section 21 and Rental Reform Bill add to Landlord uncertainty

The abolition of Section 21, a key element of the proposed RRB, is another concern for many landlords. Rachel Horton, Lettings Director at Richard Watkinson & Partners, highlights that some landlords are reducing their portfolios to limit potential tax impacts, but many are more concerned about losing the ability to easily regain possession of their properties under the new legislation.

Darren Moore, Head of Lettings at Bentons in the East Midlands, adds that while long-term landlords are used to adapting to new legislation, the removal of Section 21 is causing anxiety about regaining possession of properties through an already strained court system. He urges landlords not to panic, stating that the private rental sector will continue to evolve, and knowledgeable letting agents can guide landlords through these changes.

Regional differences in Landlord sentiment

Landlord sentiment varies across the country, with some regions seeing a more pronounced shift in landlord behaviour. In the East Midlands, Moore reports that portfolio landlords remain optimistic, with rising rents and strong demand countering any immediate concerns. However, he warns that the lack of new buy-to-let investment could worsen the supply-demand imbalance in certain areas, leading to higher rents.

In contrast, regions like Birmingham and London are already experiencing a landlord sell-off, though new Build to Rent developments may help offset this in city centres.

Uncertainty and adaptation in the Private Rental Market

As government reforms and tax changes loom, the private rental sector is facing a period of uncertainty. While some landlords may exit the market, especially those with smaller portfolios, larger landlords seem prepared to ride out the turbulence. However, agents agree that the proposed reforms could potentially lead to higher rents, reduced availability of rental properties, and a more challenging environment for tenants in the short to medium term.

The Guild of Property Professionals advises landlords to stay informed about these changes and work with knowledgeable agents to navigate the evolving landscape.