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‘Time to reintroduce mortgage income tax relief to curb rent rises`

The loss of mortgage income tax relief is a key reason for rapid rental increases – and it’s about time the government reintroduced it.

Greg Tsuman, director of lettings at Martyn Gerrard Estate Agents and president of ARLA Propertymark, was responding to damning figures from the Office for National Statistics, which showed that rents have risen by over 10% annually across more than one in five properties in England and Wales, rising to one in four in London.

Since April 2020 buy-to-let landlords have had to pay tax on all their rental income, receiving a tax credit worth 20% of their mortgage interest repayments instead.

Tsuman said: “The Treasury seems to be overlooking the fact that it is eating the golden goose with the current tax structure imposed on private landlords.

“Section 24 of the Finance Act has forced landlords to pay taxes on turnover rather than just profit, meaning they are being taxed on interest payments, which have gone up from 0.1% to 5.25%. Whilst it will come as some relief to private landlords that the Bank of England kept the base interest rate frozen this week, rates are still high, forcing landlords to increase rents and ultimately pass on these costs to tenants. But the ranks of landlords who are staying is dwindling, with many opting to sell up and leave altogether, further reducing supply of rental properties and forcing rents up even higher.

“We need to urgently review the tax regime for private landlords and reintroduce mortgage interest relief by scrapping Section 24. Simply put, I suspect the Treasury would be raising considerably more revenue from the buy-to-let sector if it hadn’t forced this mass exodus of private landlords, resulting in fewer paying taxes.

“We need to be bringing landlords back to the market, not forcing them out, so that we have a competitive market that keeps rents low. It is encouraging to see the government apparently taking note of this by recently rejecting rent caps, but the root causes of the rental crisis are still firmly gripping the sector, and they will continue to do so until the government acts.”

Rental increases are particularly widespread in London, as three quarters (77%) of landlords in the capital increased rents.

Sarah Coles, head of personal finance, Hargreaves Lansdown, said: “The rental market is getting squeezed on all sides. Landlords are under rising pressure. They face tougher rules that mean they pay more tax on the way in, as they go along and then when they sell.

“More rights for renters means landlord costs are increasing, which means they make less money. Meanwhile, those who have borrowed to invest are facing rocketing mortgage costs when they come to refinance. Some of those who stay in the rental market are switching to short-term lets and Airbnb for a better yield.

“Tenants, meanwhile, are multiplying. The Royal Institution of Chartered Surveyors checks the number of people looking for rental property each month, and it has been rising relentlessly for months. A combination of more people renting later in life, more living alone, and an increased desire for self-contained space after the pandemic have all helped boost these numbers.”