Tax burdens and Renters’ Rights Bill discourage investment in PRS

Landlords remain apprehensive over the impact of the Renters’ Rights Bill and don’t plan to invest in the private rented sector (PRS) in the short-term, according to a report.

Findings by JLL, a property consultancy firm, reveal that half of landlords (50%) say the Renters’ Rights Bill will discourage them from investing.

The firm also found that many landlords view tax burdens as a major deterrent to investment.

Only 4% of landlords said they plan to increase their portfolio

According to the report, the adoption of the Renters’ Rights Bill is the biggest policy change that would discourage landlords from investing further.

Only 4% of landlords said they plan to increase their portfolio over the next year, with JLL pointing out many smaller landlords are particularly concerned about the abolition of fixed-term tenancies within the bill and the resulting uncertainty over consistent rental income.

The report also reveals that EPC changes, with all landlords needing to meet EPC C targets by 2030 and for new tenancies by 2028, have fuelled concerns, with 16% of landlords surveyed planning to sell their properties in response to the changes.

However, despite short-term caution, the report reveals 24% of landlords plan to invest over the next five years, which JLL says shows improved confidence over the longer term as many landlords take a wait-and-see approach to how the bill will impact them.

Recognise the important role smaller landlords play

The firm says that while larger corporate landlords can help address supply and demand, smaller landlords also play a vital role in the private rented sector.

JLL says: “Landlords remain apprehensive about the impact of the Renters’ Rights Bill, with almost half of respondents saying that this would discourage them from investing further into the sector in the short term until they understand the implications.

“Looking ahead, we expect the imbalance between supply and demand in the rental market to continue. Many landlords are investing for the long term, but to satisfy demand and keep rents affordable, we need more stock.

“Institutional investors have a role to play here, but we need to recognise the important role smaller landlords play in providing much-needed rental stock too.”

Smaller landlords hit hard by tax policy changes

Elsewhere in the report, JLL says tax-related policy changes are key to unlocking investment in the PRS.

During last year’s Autumn Budget, Ms Reeves surprised investors by increasing the stamp duty land tax (SDLT) surcharge from 3% to 5% for those buying additional properties.

However, now more than 61% of investors said abolishing the higher SDLT rates for additional properties would make them more likely to invest. Just over half (57%) said a reduction in Capital Gains Tax (CGT) rates would also encourage investment.

JLL says many smaller landlords have been hit hard by tax changes.

The firm said: “Financial incentives are arguably critical in encouraging investment into the sector given the most recent policy changes have placed considerable financial burdens onto many landlords, particularly those with only a handful of properties.”

88% of landlords own one to four properties

The report also reveals, more than 88% of landlords own one to four properties, while less than 4% own ten or more.

The survey also points out that a third of those surveyed had entered the PRS in the last five years, with only 10% of landlords having been in the sector for more than 20 years.

The primary reasons for owning investment property include supporting pension funds or generating additional income, with only 12% saying they own investment properties as their main income source.

Nearly half of landlords (48%) bought their property/properties using a mortgage, while only 3% of landlords said they had inherited or were given property.