Each year, Parliament passes a Finance Act, enacting the annual budget. Ten years ago, the Finance Act 2015 introduced a provision that would send shockwaves through the rental market – one whose impact is still felt today.
That provision, Section 24, restricted finance cost relief for individual landlords, creating the conditions for the rental crisis we see unfolding before us.
Before Section 24, landlords were able to deduct all their finance costs, including mortgage interest, from their rental income when calculating tax liabilities, which is the standard practice for determining taxable income for any other business. But when this relief was removed, individual landlords found themselves having to pay tax on income, even when they were operating at a loss.
For many, the effect was gradual, taking full force from the 2020-2021 tax year. This coincided with the Covid pandemic, where interest rates were at nearly 0%, which meant that the changes were not immediately felt. But with the Bank of England’s interest rates reaching their zenith in the summer of 2023, hitting 5.25%, the situation became untenable. As landlords faced rising mortgage payments, often surpassing their rental income, many were forced to either raise rents or sell up, further diminishing the supply of rental homes.
Shrinking supply and rising rents
The result? Tenants faced skyrocketing rents and the looming threat of eviction, all while the number of rental properties dwindled. According to Rightmove, rental enquiries per property more than tripled from 2019 to 2023. With supply tight and demand soaring, many tenants were left in a brutal competition for fewer homes. The average annual cost of renting has risen by £3,000 over the past three years, as reported by Zoopla, leaving renters feeling squeezed and frustrated. Due to uncertainty over where an increase in rental supply will come from in the coming years, Savills has forecasted that rents will rise a further +4.0% in 2025 – outpacing income growth.
This is where Labour’s responsibility comes into sharp focus. Elected on a promise to address the housing crisis, Labour’s silence on the shrinking rental sector is increasingly deafening. While the Renters Reform Bill (RRB) offers some tenant protections, it addresses symptoms rather than the root cause. A solution that tackles tenant rights alone without addressing the lack of available homes is akin to regulating a species that’s already gone extinct.
Housing availability is shrinking, and buying a home is no easier than it was a decade ago, with house prices jumping to a new high in January 2025. While some policy changes offer short-term fixes, the underlying issue – Section 24 – continues to put pressure on rents.
Feeling the pinch
Meanwhile, the government continues to add financial burdens on landlords. The RRB contains a number of provisions that will add costs and increase risks for landlords, such as the ban on no fault evictions. The last Autumn Budget increased the rate of Stamp Duty on buy-to-let properties to 5% – equivalent to the entire first year’s annual rent for an average property in London. At a time when the market is already struggling, this move makes it even harder for new landlords to enter the market.
Recent figures from the government’s latest English Private Landlord Survey highlight this trend. The number of landlords who say they would re-let their properties when they next become vacant has dropped by 26% since 2018. Today, only 59% of landlords are willing to re-let, while 31% are planning to reduce their portfolios.
The reality is that policies like Section 24 have decimated the small landlord sector, the very force that helped maintain stable rents during the pandemic. Instead of creating a level playing field, these changes have pushed many small landlords out, replaced by larger institutional investors with the capital to weather economic storms. In turn, the rental market has become increasingly unaffordable for tenants and riskier for landlords.
Navigating a crossroads
Immediate action is needed by the Government if it is going to stop this rental market exodus. Fortunately, there is a simple fix: repeal Section 24 of the Finance Act and make renting properties more economically viable. This could incentivise investment in the private rental market, increasing supply, improving quality of homes and, eventually, stabilising rents.
If not, at least the government should be transparent about the effects of its policies. If the goal is to raise revenue, why not put VAT on rent instead? At least this would make the cost clear rather than hidden in a fairness policy that only hurts those it’s supposed to protect.
Labour must act now if it is to avoid repeating the mistakes of the past. The clock is ticking, and the government’s next steps will determine whether the rental market’s decline continues – or whether it can be salvaged before it’s too late.
Greg Tsuman is managing director of lettings at Martyn Gerrard.
Read the orginal article: https://propertyindustryeye.com/after-10-years-it-is-time-for-the-government-to-get-serious-about-the-rental-crisis/
