Charity wants rent controls to cut LHA costs and reform landlord taxes

A charity is calling on the government to introduce rent controls to slow rent rises and reduce the cost of Local Housing Allowance (LHA) uprating.

The Joseph Rowntree Foundation argues that by slowing rent growth, rent controls could significantly reduce the cost of annual LHA uprating, as rates are linked to local market rents.

To ease the impact on landlords, it proposes restoring mortgage interest tax relief for mortgaged landlords, funded by charging National Insurance Contributions (NICs) on rental income.

Unfreeze LHA rates

LHA rates remain frozen, having last been linked to actual rents in April 2024. A report by the Joseph Rowntree Foundation warns that if the freeze continues throughout this parliament, private renters on housing benefit will be around £700 a year worse off by 2029.

A further 50,000 people could be pushed into poverty, 60,000 into deep poverty and 80,000, including 30,000 children, into very deep poverty.

The charity is urging the government to restore LHA rates to the 30th percentile of local rents at the Autumn Budget and commit to annual uprating thereafter.

It also calls for rent controls both within and between tenancies to curb rent growth, reduce the cost of future LHA increases and improve affordability for renters beyond the benefits system.

The charity’s modelling suggests introducing these controls in 2027/28 could cut the cost of relinking LHA to local rents by £1.1 billion in 2030/31, a 40% reduction in the cost of uprating.

Reinstate mortgage interest relief for landlords

However, the charity acknowledges that rent controls could create uncertainty for landlords, arguing that combining rent controls with tax reform could protect those most at risk of making losses.

The Joseph Rowntree Foundation proposes reinstating full mortgage interest tax relief for landlords, reversing the restrictions introduced under Section 24 of the Finance Act 2015 by then Chancellor George Osborne.

The changes, phased in from 2017, ended landlords’ ability to deduct all mortgage interest from rental income when calculating taxable profits, replacing it with a basic-rate tax reduction, generally worth 20%.

The report said: “To smooth the introduction of a rent control, and its potential impact on the small minority of financially exposed landlords, by reinstating mortgage interest relief to protect mortgaged landlords. This should be paid for by charging landlords National Insurance Contributions (NICs) on their rental income, primarily affecting landlords who own their properties outright and have been making above-normal profits due to this favourable tax treatment.

“This would rebalance the tax burden, taking it away from landlords making slimmer profits and towards those making larger ones, putting landlords on a better financial footing to absorb a rent control and preventing the risk of a sharp sell-off.”

As previously reported by Property118, the government has defended the LHA freeze, citing “the challenging fiscal context” among the factors considered, and has said it has no plans to introduce rent controls.