State of the PRS – 2016, Quarter 2
Over the past 20 years there has been considerable change in society in terms of where people live. The proportion of those in social housing or owning their own homes has decreased and more households are looking to the Private Rented Sector (PRS) for their home. Currently, the government are implementing major changes to the taxation of the PRS, including changes to Mortgage Interest Relief, Stamp Duty Land Tax, and Capital Gains Tax. To help us understand the impact of these changes on tenants, landlords and the sector, the RLA has carried out a large comprehensive survey with a total sample of 2,883 landlords.
The sample of landlords included a vast array of portfolio sizes, with the majority of landlords having 2-3 properties (28%). The typical property let out by landlords was a 2-bedroom property to one family (35% of landlords) and the majority of landlords letting property primarily in the South East (20%). There are a number of positive findings from the survey:
- 86% of landlords reported they had a good relationship with their tenant
- 82% of landlords reported their tenants payed their rent on time
- The current average tenancy period was found to be 3 years, suggesting the majority of tenants are happy and secure in their current home, and reform for a minimum tenancy agreement is not needed
- 73% of landlords have not attempted to remove tenants from their property in the last 12 months
- Yet, for those who had, the man reason was because of rent arrears. This suggests that rent arrears is major concern for landlords and will therefore be a focus of the welfare reform quarterly survey in spring 2017
- NUMBER OF LANDLORDS WITH A GOOD RELATIONSHIP WITH THEIR TENANT 86% 86%
- NUMBER OF LANDLORDS WHO’S TENANTS PAYED THEIR RENT ON TIME 82% 82%
In regards to the significant taxation reforms being implemented by the UK government:
- The majority of landlords (71%) reported the changes would negatively impact on their rental income
- With 67% of landlords facing reduced profitability due to changes in MIR
- 68% of these landlords reported these changes would reduce their profitability by at least 20%
Number of landlords who reported the changes would negatively impact on their rental income
Number of landlords facing reduced profitability due to changes in MIR
Number of landlords who reported tax changes would reduce their profitability by at least 20%
These findings identify serious implications for the financial health of the sector, on continued investment by landlords and offer a grim outlook for tenants. A total of 58% of landlords are considering reducing investment in their portfolio due to these changes and 66% are planning to increase rents to offset the impact of taxation reform. These rent increases are likely to take effect within the next 12 months, with 56% of landlords planning to increase rents during this period, the majority citing the changes to Mortgage Interest Relief as the main reason.
While these changes will have a serious impact on the finances of landlords, those who will be most affected is the tenants. Our findings show the typical properties being let by landlords are two or three bedroomed houses rented to single families, with the majority of landlords letting to families with at least one child. We argue the Government’s changes to taxation will negatively impact the thousands of families who depend on the sector for a home, potentially disrupting children’s education and causing financial worry for parents who may have to choose between feeding their child and paying the rent on time.