According to research by Capital Economics on behalf of the National Residential Landlords Association (NRLA), if the Bank of England base rate peaks at five per cent and remains above 2.5 per cent until the end of 2027, this could lead 735,000 private rented properties to be lost across the UK.
The research firm said the above was the “central scenario”.
This is compared to private rented stock figures from 2021 and could lead to a loss of £1bn in income and corporation tax for the Treasury, the report noted.
The report said the average annual rent growth would be 4.7 percentage points higher than if rates had remained at their 2017 to 2019 levels of 1.9 per cent.
Capital Economics noted that there was a limit on how high rents could go due to affordability constraints, meaning some landlords may have to absorb costs which would put greater pressure on supply.
“Even if there are not enough buyers in the owner-occupied market to absorb the sales, the surge in properties being put up for sale by landlords would add further downward pressure to house prices, weakening economic growth and weighing on investment and housebuilding. That would make it more difficult for the government to reach its housing target,” it explained.
The report added that if interest rates peaked at 7.5 per cent and remained above four per cent until 2027, there could be a loss of 1,015,000 properties from the private rented sector.
It added that the loss of income and corporate tax would amount to £1.2bn a year and average UK rental growth would be 7.6 percentage points higher than if mortgage rates were 1.9 per cent.
Government help
The report said the government could “limit” some of the negative impact from higher interest rates by bringing back full Mortgage Interest Relief.
In 2016 the government brought in a raft of policies, including the removal of Mortgage Interest Relief for higher and additional rate taxpayers.
Other changes included banning letting agents charging fees to tenants, a three per cent stamp duty surcharge on additional properties and keeping capital gains tax rate for residential property above the rate for other assets.
If full Mortgage Interest Relief was reinstated, Capital Economics estimated that there would be 110,000 fewer properties lost than in private rented sector than the central scenario.
It added that the Treasury would lose £400m less from income and corporation tax revenue each year and annual rental growth would be 1.1 percentage points lower.
The NRLA is calling on the government to undergo a full review to examine the impact of recent tax rises on the sector.
Ben Beadle, chief executive of the National Residential Landlords Association, said: “In 2015 the government said it wanted to ‘create a more level playing field between those buying a home to let and those buying a home to live in’. In doing so it hiked costs for responsible landlords and totally ignored the burden it would create for renters.
“In the midst of an unprecedented cost-of-living crisis, the government needs to put economic reality before political pride and reverse this travesty of a reform.”
He added: “Tax hikes on landlords, exacerbated by rising interest rates, have deepened the supply crisis. And as this research demonstrates the situation is unlikely to improve until and unless it is reversed.
“A radical rejection of these damaging policies is necessary to help stem the tide of lost rental properties, limit rent rises, and boost Treasury revenue.”
