A Propertymark report sheds light on the significant and far-reaching consequences of the Conservative government’s phased removal of mortgage interest rate relief under Section 24 of the Finance (No.2) Act 2015. Introduced by former Chancellor George Osborne, the measure aimed to make the tax system fairer by limiting Income Tax relief on residential property finance costs to the basic rate of tax. This was intended to ensure higher-income landlords no longer received the most generous tax treatment.

The full report can be seen here, and in summary says:

Key Findings and Consequences of Section 24:

1. Increased Tax Burden:
   • Landlords have been pushed into higher tax brackets, diminishing the financial viability of existing investments.
   • Many landlords report breaking even or experiencing losses, with varied levels of financial resilience among them.
2. Financial Strain:
   • Landlords with lower financial resilience have seen their living standards compromised and struggle to pay bills, resulting in precarious financial positions.
3. Exacerbating Factors:
   • The situation is worsened by rising mortgage interest rates, the cost-of-living crisis, and other tax and regulatory changes.
4. Alternative Financial Strategies:
   • Landlords have adopted strategies such as incorporation, which comes with its own financial and administrative burdens.
   • Rent increases have been implemented to cover increased tax liabilities and business costs, impacting tenants already facing a cost-of-living crisis.
5. Impact on Property Maintenance:
   • Maintenance budgets have been cut due to reduced cash flows, risking the saleability and rentability of properties.
   • Minor repairs left unattended can escalate into costly, major repairs, potentially leading to dangerous living conditions.
6. Reduction in Rental Stock:
   • Tenants face suboptimal living conditions as fewer landlords can afford energy efficiency improvements.
   • Some landlords are exiting the rental market, selling properties that often become owner-occupied, reducing the rental stock and driving up rent levels.
7. Long-Term Implications:
   • Concerns over legislation, an aging landlord cohort, and better investment opportunities elsewhere are also influencing landlords’ decisions.
   • Section 24 is a significant factor in landlords choosing to reduce or not expand their portfolios, relocate properties, or leave the sector entirely.

Broader Sector Impact:

• The net effect is a reduction in available rental properties, leading to increased rents and a strained rental market.
• The repercussions of Section 24 will continue to affect the sector, exacerbating the housing crisis and impacting both landlords and tenants.

Conclusion:

The Propertymark report highlights the unintended and extensive consequences of Section 24, calling for a reassessment of policies to ensure the stability and health of the private rental sector. The combination of reduced rental stock, increased maintenance issues, and financial strain on landlords paints a challenging picture for the future of the UK’s housing market.