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About the Residential Landlords Association

The home for landlords

The RLA represents the interests of landlords in the private rented sector (PRS) across

England and Wales. In November 2019 we celebrated the recruitment of our 40,000th

member. We also have a further 80,000+ landlords, letting agents and associated

professionals regularly checking our web-site for information on the sector.

We are a growing community of landlords who trust and rely on us to deliver day-to-day

support, expert advice, government campaigning, plus a range of high-quality services

relevant to their needs.

At the RLA, we understand the challenges faced by landlords - we’ve been fighting their

corner for over 20 years. We provide the expertise, support and tools they need, and

ensure the landlords’ voice is heard in national and local policy circles.

We campaign to improve the private rented sector for both landlords and tenants,

engaging with policymakers at all levels of Government. Our vision is to make the renting

experience better for everyone involved in the private rented sector.

For more information about the RLA, please visit https://www.rla.org.uk.

You can also call us on 0161 962 0010, email [email protected] or tweet us @RLA_News.

About the RLA Private Renting Evidence, Analysis and Research Lab

The home for research

PEARL, the RLA’s research-based policy exchange unit was set up to provide high-quality

research and analysis on the economic, social, and political issues facing the private

rented sector. PEARL on its own, and in association with leading partners, provides

expertise, evidence, and research, to support evidence-led policy making in the private

rented sector.

The RLA believes in the importance of policymakers considering an evidence base and the

potential consequences in their decision-making. Our aim is to influence decision makers

and so translate our research findings into an improved renting experience for all

stakeholders.

For more information about the RLA’s Private renting Evidence, Analysis & Research Lab

(PEARL), please visit https://www.research.rla.org.uk or visit our twitter page

@RLA_PEARL.

https://www.research.rla.org.uk/

About the Authors

This report is written and researched by Nick Clay & Aidan Crehan of the Residential

Landlords Association.

Nick Clay MSc, PgDip is the Senior Researcher for the RLA. Before joining the RLA Nick had

a successful career working for various consultancy companies, Whitehall and academia.

He specialised in advising clients on business support, promoting entrepreneurship and

evaluating labour market initiatives. Most recently Nick worked as a Senior Economist for a

multi-national consultancy advising Whitehall and City Regions on major infrastructure and

investment projects.

Aidan Crehan is Policy Assistant for the RLA. He is a politics graduate from Queen’s

University Belfast, receiving First Class Honours and the Lemberger-Metrick prize. Aidan

has previously worked with Northern Ireland’s Department for Communities, specifically

focusing on community cohesion projects.

Disclaimer

This research report has been written to inform and stimulate policy debate. While effort

has been made to ensure that the data and other information are accurate, some errors

may remain.

The purpose of the report is to provide information, analysis and background regarding the

issues affecting landlords and the private rented sector. It is neither intended for use in

advertising and promotions nor for market forecasting, and no liability is accepted in

either regard.

Copyright

Intellectual copyright resides with the Residential Landlords Association. However, we

want to encourage the circulation of our work as widely as possible while retaining the

copyright. We, therefore, have an open access policy which enables anyone to download,

save, and distribute our work. Extracts may be quoted by the media with appropriate

credit to the report author and the RLA. All copyright and registered trademarks remain

the property of their owners.

Preferred citation

To cite this report, we would prefer that you use the following:

RLA (2019). State of the Private Rented Sector Quarter 3: Tax, Finance & Supply.

December 2019. Manchester: UK Residential Landlords Association, December 2019.

Contents

Executive Summary

1. Introduction ........................................................................................ 1

1.1 Introduction .................................................................................. 1

1.2 The Sample and Sampling .................................................................. 1

1.2.1 Limitations of the sample ............................................................. 2

1.3 Research content ............................................................................ 3

1.3.1 Landlord Confidence Index ........................................................... 3

1.4 Objectives of the research ................................................................. 3

1.4.1 Structure of this report ................................................................ 3

2. Landlords: survey profile ........................................................................ 5

2.1 Introduction .................................................................................. 5

2.2 Profile of survey participants .............................................................. 5

2.3 Landlords: confidence and key business decisions ...................................... 8

2.3.1 Landlord confidence ................................................................... 8

2.3.2 Portfolios & rent levels ................................................................ 9

3. Landlords & finance ............................................................................. 10

3.1 Introduction ................................................................................. 10

3.2 Landlords and finance ..................................................................... 10

3.2.1 Loan to Value levels .................................................................. 10

3.2.2 Equity funded expansion ............................................................. 13

3.3 Landlords’ current financial position .................................................... 14

3.3.1 Current debt levels ................................................................... 14

3.3.2 Rental yields and achieving targets ................................................ 15

3.3.3 Securing finance ....................................................................... 17

4. Landlords & tax issues ........................................................................... 18

4.1 Introduction ................................................................................. 18

4.2 Organising tax affairs ...................................................................... 18

4.3 Impact of tax changes ..................................................................... 21

4.3.1 Tax changes and landlords’ response .............................................. 21

4.3.2 The broader effects of Stamp Duty Land Tax on the PRS ....................... 24

4.3.3 Changes in Mortgage Interest Tax Relief ........................................... 26

4.3.4 Capital Gains Tax and reluctance to sell property ............................... 26

5. Supply side issues ................................................................................ 30

5.1 Introduction ................................................................................. 30

5.1.1 Landlords’ ambition & initial goals ................................................. 30

5.1.2 Landlord - views on their own experiences ....................................... 33

5.1.3 Landlords and existing the PRS ...................................................... 34

6. Energy efficiency ................................................................................. 37

6.1 Introduction ................................................................................. 37

6.2 Investment in energy efficiency .......................................................... 37

6.2.1 Recent investment in energy efficiency ........................................... 38

6.2.2 Expected future investment in energy efficiency measures .................... 39

6.2.3 Funding energy improvements: barriers & support mechanisms ............... 43

7. Potential policy initiatives ...................................................................... 47

7.1 Introduction ................................................................................. 47

7.2 Landlords: concerns and key ideas ....................................................... 47

7.3 Views on specific policies and proposals ................................................ 50

7.3.1 Possible Stamp Duty reform ......................................................... 50

7.3.2 Views on possible Capital Gains Tax reform ....................................... 52

7.4 …and finally ................................................................................. 54

7.4.1 A question on Brexit .................................................................. 54

8. Key point summary and recommendations ................................................... 55

8.1 Key point summary ......................................................................... 55

8.1.1 Landlords: survey profile ............................................................. 55

8.1.2 Landlords & finance ................................................................... 55

8.1.3 Landlords and tax issues ............................................................. 57

8.1.4 Supply side issues ..................................................................... 58

8.1.5 Energy efficiency ...................................................................... 59

8.1.6 Potential policy initiatives ........................................................... 60

8.2 Policy conclusions and recommendations ............................................... 61

8.2.1 Profile of landlords & landlord confidence ........................................ 61

8.2.2 Landlords and finance ................................................................ 61

8.2.3 Landlords and tax issues ............................................................. 62

8.2.4 Supply side issues ..................................................................... 62

8.2.5 Energy efficiency ...................................................................... 62

8.2.6 Potential policy developments ...................................................... 63

APPENDIX

EXECUTIVE SUMMARY

The RLA’s State of the PRS reports are a quarterly series of research reports which focus

on the current thoughts, motivations and actions of independent residential landlords with

property predominantly in England and Wales. Others who contribute to a smooth

functioning PRS (Private Rented Sector) are also invited to participate in these surveys.

This is the Quarter 3 survey, which focuses on Finance, Tax and Supply issues. The survey

also includes a section of questions on energy efficiency and the potential for government

support to increase landlord investment in such measures.

In total, 2,037 people participated in this survey. Of these, 1,993 are landlords who

currently let property.

The survey findings reveal the following:

Profile of landlords & landlord confidence

Despite continued demand for private sector rented housing, overall confidence among

landlords continues to fall. Uncertainties about future market conditions have led to a

particularly noticeable fall in confidence in London. The gap between existing landlords

who are planning to sell property and those who are planning to buy is continuing to

widen.

Landlords and finance

Many landlords, though they may have expanded their business, often let property with

modest aims and ambitions. A smaller group of landlords however have taken advantage of

generous lending conditions and light touch banking scrutiny to build a more substantial

portfolio of properties.

A proportion of landlords may have businesses which are susceptible to shocks from

sudden policy changes or interest rate rises.

Landlords and tax issues

Rather than any one tax change, it has been the cumulative effect of changes across the

tax spectrum which has lowered confidence. As a result, an increasing proportion of

landlords are leaving (or considering leaving) the sector.

Many landlords who participated in this survey stated they would also be better disposed

to invest in construction and conversion projects were the tax structure they face

different. The current tax regime works against such entrepreneurialism and restricts

opportunities to increase the supply of private rented housing.

Capital Gains Tax is distorting the housing market, forcing many landlords to hold property

longer than they initially anticipated. The effect is to lower investment in the properties

which are let in the PRS.

Supply side issues

Pension top ups and additional income provides the modest motivation for many landlords.

However, landlords are finding it much more difficult to realise their ambitions now than

they did five years ago. Furthermore, the business of being a landlord is becoming an

increasingly stressful self-employment option. Up to 30% of landlords are seeking to exit

the sector in the next five years.

Energy efficiency

Landlords have a track record of investing in energy efficient measures – there is a

business case for doing so and many landlords recognise the wider importance of energy

efficiency. This means almost two-thirds of landlords let property which meets current

EPC targets set out in the government’s Clean Growth Strategy.

Boilers, lighting and window glazing have been the most likely forms of investment. The

survey finds that intervention by means of tax or grant based support could bring

investment plans forward.

But this depends on the detail of any offer and government must recognise that with many

landlords seeking to exit the market, investment will require assurances on the wider

sustainability of an individual landlord’s business.

Potential policy initiatives

Landlords are nervous about the further damage a newly mandated government could

have on their business. Reversal of the phase-out of MIR, followed by CGT reductions are

the key changes landlords wish to see.

Several tax reforms were put to landlords and they favoured specific policies which could

unlock investment in the PRS and encourage property sales to tenants in situ.

1

1. Introduction

This report forms part of a quarterly series of surveys conducted by the Residential

Landlords Association’s (RLA) Private renting Evidence Analysis & Research Lab

(PEARL). The surveys seek to better understand the Private Rented Sector (PRS) in

England and Wales from a supply-side perspective. They inform policy makers and

provide evidence and insight on how legislation and policy will impact on a smooth and

efficient housing market.

1.1 Introduction

In September 2019, the RLA launched its quarterly survey, the third in a survey series

which focuses on issues of importance to RLA members. The survey also incorporates the

views of the wider landlord community and supply chain.

RLA PEARL conducts four quarterly surveys of the PRS1 each year. Each survey focuses on

changes in different policy areas. This survey focuses on Tax, Finance & Supply Side issues.

At the time of drafting the survey the possibility of a General Election was becoming

stronger, and more was becoming known about the stance towards the PRS being taken by

the major parties. This influenced the survey’s content. We have also ‘tested’ policy ideas

and initiatives in this survey, in the event they may become future policy.

This has meant the survey has been somewhat longer than usual and so placed more

demands on those participating.

The RLA wish to thank all those who took the time to complete the survey. They can rest

assured that their responses were used in the formulation of the RLA’s election strategy

and manifesto, published before this review of the survey’s findings has been released.

1.2 The Sample and Sampling

This report is the product of an opportunity-based survey:

• The RLA’s database of landlords, which incorporates members and associate

members2 provided the basis for direct invitations to complete the survey via the

organisation’s CRM system.

• In addition, non-member service users were invited to participate3.

1 Note that from this point forward we use the term ‘landlord’ as a non-gender specific description of people who completed this survey 2 Who are enrolled via a membership under another individual or a corporate account. 3 Who register via the RLA website for limited access to benefits.

2

• Following initial contact, these members/non-members were contacted regularly

via email.

• The research was also advertised to the wider landlord community in:

o Multiple third-party websites; adverts on the RLA website, the RLA

Campaigns and NewsCentre.

o There was also additional promotion on social media by the RLA and partner

organisations (for example via the @RLA_PEARL Twitter feed).

From this activity over 2,000 responses were gathered. A response rate is difficult to

gauge because:

1. The organisation’s membership list is dynamic and so will change across the survey

period.

2. The survey is also open to non-members.

Note the survey was left open longer than is usual and we also had slightly fewer

responses. This reflects a couple of factors:

1. This is the fifth major survey our members have completed this year, so a little

survey fatigue is inevitable.

2. The survey was running parallel with a letter-writing campaign on Section 21 which

involved direct contact between the RLA and members.

3. Our typical survey response is usually very high at c2,500 per survey. It is perhaps

therefore the other surveys which have a higher number of responses, rather than

this one being lower.

1.2.1 Limitations of the sample

The aim of the approach to sampling, as with most RLA surveys, is to maximise the number

of responses. The priority is to ensure each potential survey participant is equally

informed about the opportunity to do so.

However, the survey and associated advertising were online, this could lead to sample

selection bias in favour of those who regularly access the internet.

Compared to the results of the English Private Landlord Survey (2018, MHCLG), landlords

who respond to RLA surveys typically have a similar age profile to the government study.

However (i) RLA members receive a lower monthly rental income and (ii) our RLA surveys

typically feature a larger proportion of landlords who have multiple properties to let.

3

Despite these caveats, the RLA can point to three factors which provide assurance that the

responses in this report are consistent with the views of the wider sector. These factors

are (i) the large number of responses, (ii) the spatial distribution of respondents and (iii)

the positive feedback we receive on our reports from members.

1.3 Research content

This research helps the RLA to develop essential insights into the issues affecting the

sector, and the survey covered a range of topics. These topics included (but this is not a

definitive list) the following:

• The motivations for buying or selling property.

• Landlords’ plans for adjusting rent levels.

• An account of changing Loan to Value (LTV) ratios in the PRS and meeting the

demands of capital providers.

• Experience of meeting financial targets.

• The impact of changing tax rules on landlords’ behaviour and motivation.

• Views on energy efficiency and possible tax reforms.

1.3.1 Landlord Confidence Index

The RLA have recently introduced the Landlord Confidence Index (LCI). The LCI draws on

the data collected in the fieldwork here to provide a snapshot of the behaviour,

motivation and outlook of landlords in the PRS. The LCI can be found in an Appendix to

this report4.

1.4 Objectives of the research

The findings of this research help to provide foundations for the RLA’s campaigning to

make renting better for all. We also hope that this research will provide an opportunity for

evidence-based decisions by policy-makers. Ultimately, our aim is to widen the

understanding of landlords, tenants and the private rented sector in general. By doing so,

better policy will emerge.

1.4.1 Structure of this report

The remainder of this document is structured as follows:

• Section 2 provides a profile of those who participated in the research by responding

to this survey.

4 There is more discussion about the LCI on our PEARL home page which can be found at research.rla.org.uk.

4

o It also reports on current confidence in the PRS sector. This is with

reference to the new Landlord Confidence Index, which can be found in the

Appendix to this report.

• Section 3 reports on the financial health of the PRS sector, and the sensitivity of

the sector to possible structural change.

• Section 4 focuses on the impact tax changes have had on both landlords and the

wider rental sector.

• This analysis of the impact of tax changes is extended in Section 5. This section

considers the impact of change on landlord expectations and business horizons.

• Landlords were asked an additional set of questions on energy efficiency measures

and the possibility of tax/grant incentives to stimulate investment. These results

are set out in Section 6.

• Section 7 is also focused on tax changes and the impact on supply of a series of

potential policy innovations on tax.

• Finally, Section 8 provides a summary and some conclusions.

5

2. Landlords: survey profile

2.1 Introduction

This section outlines, firstly, a brief profile of respondents. Secondly, a summary of the

attitudes, behaviours and influences landlords faced by the end of Quarter 3, 2019.

This latter section is now presented in summary form, with analysis being the feature of

the newly launched Landlord Confidence Index – a copy of which is in the Appendix.

2.2 Profile of survey participants

The table below breaks down the sample by their PRS status. Whilst many participants will

fit into more than one category (for example a solicitor who is also a landlord) the survey

was explicit in asking for the respondents primary status in respect of the objectives of

this survey:

Table 2.1: Breakdown of survey participants

Base: All respondents

Thus:

• Over 95% (97.8%) of those taking part in the survey are landlords.

• Landlords of single properties account for 15% of both the entire sample and of all

landlords (15.4%).

No of respondents

Percentage of respondents

A landlord (multiple properties) 1,687 82.8%

A landlord of a single property 306 15.0%

A representative of a letting agency 21 1.0%

A former landlord 11 0.5%

A solicitor/lawyer who specialises in housing 1 0.0%

A tenant 1 0.0%

Housing officer (Local Authority or housing

agency/association)

3 0.1%

Other 7 0.3%

Total 2,037 100.0%

6

The following tables focus on the landlords and letting agents who have participated in

the survey.

The first table below looks at the location of property portfolios (rather than the

landlords/agents themselves). Where landlords or agents have their portfolio across more

than one region, we asked them to focus on the location of most of their properties:

Table 2.2: Region in which property businesses are [mostly] based

Base: All landlords and letting agents

• The largest proportion of respondents were landlords who have most of their

portfolio based in the South East (21.4%).

• In addition, both London (14.4%) and the South West (12.3%) are well represented.

• The North West region accounts for over one-in-eight responses (13.6%) and is the

largest representation in the north.

The Quarter 2 survey had 2,700 landlords and letting agents respond. Across England and

Wales response numbers were lower in each region in this Quarter 3 survey than for the

Quarter 2 survey.

No of respondents


North East 96 4.8%

North West 274 13.6%

Yorkshire and the Humber 172 8.5%

East Midlands 135 6.7%

West Midlands 102 5.1%

East of England 130 6.5%

London 290 14.4%

Inner London 121 5.3%

Outer London 169 7.3%

South East 430 21.4%

South West 248 12.3%

Wales 117 5.8%

Scotland 19 0.9%

I don’t let or manage any property at

present

1 0.0%

Total 2,037 100.0%

7

Below the profile of survey participants is set out by their age followed by gender:

Table 2.3: Age profile of landlords/agents completing the survey


• Almost 70% (69.1%) of respondents are aged over 55 years.

• Just over 7% (7.2%) are under 45 years old.

Table 2.4: Gender profile of landlords/agents completing the survey


• Almost 60% (58.2%) of landlords and letting agents who participated in the survey

were male.

The following table highlights the property mix offered to rent by those participating in

the survey:

No of respondents


18-24 1 0.0%

25-34 28 1.4%

35-44 117 5.8%

45-54 416 20.7%

55-64 758 37.7%

65-74 522 26.0%

75 and over 109 5.4%

Prefer not to answer 58 2.9%

Total 2,009 100.0%

No of respondents


Male 1,168 58.2%

Female 761 37.9%

Don't wish to answer 77 3.8%

Total 2,006 100.0%

8

Table 2.5: Types of property let by survey participants (Multiple responses allowed)

Base: All Landlords & Lettings Agents

These figures underline the importance of the PRS in supplying homes to families:

• Almost 70% (69.8%) of landlords and letting agents provide home for single families.

2.3 Landlords: confidence and key business decisions

This section features the attitudes and outlook landlords have in respect of their business.

It also looks at expectations over the next twelve months as well as the key factors which

shape those decisions.

The RLA now produce a Landlords’ Confidence Index (LCI) which can be found in the

Appendix and online (www.research.rla.org.uk).

Key points from the LCI are as follows:

2.3.1 Landlord confidence

Overall confidence remains low:

• Fewer than 5% of landlords are now more confident than they were in the previous

quarter.

• Across London the confidence of landlords is low:

o Outer London is now the location in which landlords of property are least

confident.

However void periods – defined as the length of time a property remains vacant between

tenancies - continues to be short:

• Over 40% (43.2%) of landlords reported their typical void period was less than two

weeks:

o Over 71% (71.3%) reported the period was for four weeks or less.

No of respondents


Houses for single families 1,394 69.8%

Flats/ Apartments 1,082 54.2%

Houses in Multiple Occupation 438 21.9%

Total 2,917 100.0%

9

• Less than 5% (4.2%) of landlords reported properties were vacant for more than 16

weeks.

2.3.2 Portfolios & rent levels

Over the last twelve months:

• More landlords sold (19%) property compared to buying (12%).

• More than twice the proportion of landlords opted to freeze rents compared to

raising rents (65% vs 31%).

Over the next twelve months:

The long-term trend in landlords reporting they will sell property is continuing its upward

path:

• Over a third of landlords (33.7%) state they are planning to either reduce their

portfolio or exit the PRS market altogether.

• The proportion of landlords looking to expand has fallen (to 12.2%), but the

downward trend, though it exists, is not as discernible.

• The gap between those planning to buy and those planning to sell is getting larger.

In addition:

• More than twice the proportion of landlords opted to freeze rents compared to

raising rents (64.6% vs 31.0%) last year.

• Next year 50% of landlords are planning to keep rent levels the same as this year.

Costs, tax change and regulatory factors are the influences most likely to underpin

landlords’ key portfolio and rent level decisions.

Key Point 1:

Even though void periods continue to be low, landlords feel that the prospects for

the PRS are somewhat bleak: Landlords feel unable to increase rents and more

landlords are planning to at least reduce their portfolios.

There has been a marked decline in the confidence of landlords in London. This

cannot be coincidence given the additional pressures of rent control proposals

from the Mayor of London’s office.

10

3. Landlords & finance

3.1 Introduction

This section looks at the evolving financial profile of a landlord’s business and the

demands placed on those who seek to let property by banks and financial institutions.

This section looks in turn at the following:

• Loan to Value levels and changes since landlords first invested in property.

• The use of BTL and equity finance to support business expansion.

• Current levels of debt and debt levels against income generation.

• Rental yields and targets.

• Monitoring requirements banks and lending institutions demand from landlords.

3.2 Landlords and finance

3.2.1 Loan to Value levels

Landlords were asked about the initial Loan to Value (LTV) on the first property which

they let in the PRS. Note this includes the LTV when any existing standard mortgage was

converted to a Buy-to-Let (BTL):

Table 3.1: Loan to Value (LTV) mortgage on first property to let

Base: All landlords

No of respondents


Above 90% 104 5.2%

Between 85%-89% 182 9.1%

Between 80%-84% 129 6.5%

Between 75%-79% 299 15.0%

Between 70%-74% 175 8.8%

Between 50%-69% 214 10.7%

Less than 50% 125 6.3%

Can't recall 174 8.7%

Didn't use a mortgage to acquire my first

property

539 27.1%

Would rather not say 51 2.6%

Total 1,992 100.0%

11

Over a quarter of landlords did not use mortgage finance to purchase their first "to let"

property.

Of those who did5:

• Over 20%6 (20.4%) of landlords had an LTV of over 85%.

• Less than 10% of landlords (8.9%) had an LTV ratio of less than 50% when acquiring

their first property.

Note that over half (55.1%) of all landlords in this survey stated they had used a BTL

mortgage to fund further property purchases. The table below shows the number of

properties these landlords purchased using BTL finance:

Table 3.2: Number of properties purchased using BTL mortgages/finance

Base: Landlords who have used BTL finance to expand portfolio

A substantial number of landlords who expanded their portfolio through BTL finance have

used the opportunity to make substantial purchases:

• Over 40% (41.2%) of landlords who purchased property, purchased more than five

properties using BTL finance:

o This proportion equates to 22.6% of all landlords who participated in this

survey.

• It must be emphasised that the largest single group of landlords are those who have

not used BTL finance to make more purchases:

o Over four-in-ten (42.6%) landlords have not done so.

5 These proportions include those who recalled obtaining a mortgage but could not recall the LTV ratio. 6 These figures have been rebased to exclude those who did not require mortgage finance.

No of respondents


One more property 123 11.2%

Two properties 177 16.2%

Between three and five properties 320 29.3%

More than five properties 451 41.2%


Total 1,094 100.0%

12

Those who used BTL finance to fund expansion were asked to comment on the LTV rates

they secured on subsequent purchases:

Table 3.3: LTV ratios on subsequent mortgage-backed purchases

Base: Landlords who have used BTL finance to expand portfolio

Thus, for subsequent properties, the BTL finance deal was somewhat more attractive:

• Over two-thirds of respondents stated their LTV on subsequent mortgage-funded

purchases was between 50-79%:

o The equivalent proportion for first purchases was just 34.5%.

• Only 8.8% of landlords reported LTV ratios of over 85% on subsequent purchases:

o The equivalent for first-purchases was 14.3%.

No of respondents


Above 90% 12 1.1%

Between 85%-89% 84 7.7%

Between 80%-84% 119 10.8%

Between 75%-79% 298 27.2%

Between 70%-74% 179 16.3%

Between 50%-69% 234 21.3%

Less than 50% 85 7.7%



Total 1,097 100.0%

13

3.2.2 Equity funded expansion

Housing equity is often used by entrepreneurs to fund business start-ups or expansion.

Landlords were asked whether they had used housing equity from one property as

collateral to fund the purchase of subsequent properties:

Table 3.4: Landlords who have borrowed to expand using housing equity to guarantee

loans

Base: All landlords

• Over one-third (35.5%) of landlords have used one property as equity to purchase

another:

o Note that 85% of those who have borrowed against equity to fund expansion

also used BTL finance.

No of respondents


Yes 704 35.5%

No 1,235 62.2%


Don't know 12 0.6%

Total 1,984 100.0%

Key Point 2:

The above shows landlords share many characteristics with the UK’s Small and

Medium Enterprise (SME) sector. Many landlords are lifestyle focused – they have

low borrowing and have had no wish to expand their portfolio significantly via

further borrowing.

14

3.3 Landlords’ current financial position

3.3.1 Current debt levels

Table 3.5 below sets out the current debt position of landlords. Landlords were asked

about the debt their businesses were presently carrying:

Table 3.5: Outstanding loan/mortgage as a proportion of portfolio valuations

Base: All landlords

• Over a third of landlords (35.2%) either have no debt or borrowings at less than 10%

of property values.

• Almost two-thirds (64.7%) of landlords have some level of debt:

o Over a third (36.6%) have debt levels over 50% of property values.

No of respondents


0% - I don’t have any debt secured against

my rental properties

619 31.1%

Outstanding debt is less than 10% of

property value

82 4.1%

Debt is between 11%-49% of property values 479 24.0%

50%-80% of property values 658 33.0%

My debt is over 80% of the current value of

my property

71 3.6%


Don't know 32 1.6%

Total 1,993 100.0%

Key Point 3:

As with an analysis of SMEs in other sectors, a small but significant proportion of

landlords have taken advantage of BTL finance to expand their portfolios. Rental

income has allowed expansion with lower debt levels for those who have pursued

growth-oriented strategies.

15

Landlords were then asked whether rental income was sufficient to cover costs, including

debt costs. Landlords were not asked to give a formal Debt to Income (DTI) ratio but

instead give a more general oversight on their current levels of financial exposure:

Table 3.6: Landlords exposure to debt: assessment of current position

Base: All landlords

• Over three-quarters (77.6%) of landlords stated that rental income was presently

enough to cover rental costs including debt repayment:

o One-third of these stated in a previous question, that they are debt free

and 40% stated their debt levels were less than 10% of property values.

• For one-landlord-in-five (21%), rent income could be insufficient:

o Just over 15% (15.7%) of landlords stated rental income does cover costs but

only through avoiding missed payments and voids;

o A further 5% (5.3%) stated outright that rental income was not meeting

current debt requirements.

3.3.2 Rental yields and achieving targets

We asked landlords about rental yields and whether their business was meeting their

rental yield target. Firstly, only one-third of landlords (36.2%) have a rental yield target.

Amongst those that do have such a target, the chart below highlights current views:

No of respondents


Rental income covers all costs 1,546 77.6%

Rental income covers costs but only if

voids/missed payments are kept to a

minimum

313 15.7%

Rental income is not meeting debt servicing

requirements

105 5.3%


Don't know 11 0.6%

Total 1,993 100.0%

16

Chart 3.1: Current views on rental yields (Multiple responses allowed)

Base: All landlords who stated they worked to a yield target

• Fewer than half (40.7%) stated they were meeting their rental yield target.

• Almost one-in-five (18.4%) stated yields in their portfolio were falling.

18.4%

22.6%

38.3%

40.7%

0% 5% 10% 15% 20% 25% 30% 35% 40% 45%

My rental yields arefalling at present

It is getting tougherto achieve my yield target

My rental yield variesacross my portfolio

I am achievingmy rental yield target

Percentage of landlords agreeing

Key Point 4:

At first glance it would seem the financial position of landlords is secure – over

three quarters of landlords are happy that income is covering costs and a high

proportion of landlords have low levels of debt.

However, whilst many landlords are [virtually] debt free and profitable, other

landlord businesses are more precarious: It is not just a question of finding tenants

– profitability is linked to the current low cost of financing their expansion.

If there were a disruption to the way many landlords are now organised – for

example were interest rates to rise, or a rent control regime introduced - the

evidence here indicates many landlord businesses may struggle to remain in profit.

17

3.3.3 Securing finance

For the final question of this section of the survey, the RLA asked landlords about their

financial records. Landlords were asked what data they have been asked to present to

their lenders or bank to demonstrate their current profitability and viability.

The table below sets out their response:

Table 3.7: Banks & Lenders requests for financial information (Multiple responses allowed)

Base: All landlords

Over half of landlords (55.2%) had never had to produce any of the listed documentation

to their lenders. Of those who had:

• The requested information is best described as "light touch" – for example

income/expenditure statements, or basic property valuation statements being

typical.

• In contrast very few landlords were asked to produce more detailed business plans

or cash flow analysis.

• Of those replying ‘Other’:

o Proof of salaried income and presentation of an annual set of accounts were

the most common item.

o Most of the ‘Other’ responses could in fact be placed in one of the stated

categories.

No of respondents


Income/expenditure statement 551 27.6%

Evaluation of property values 523 26.2%

Details of assets and liabilities 511 25.6%

Property schedule 479 24.0%

Details of debt/leverage 397 19.9%

Cash flow analysis 198 9.9%

Full business plan 172 8.6%

None of the above 1,101 55.2%

Other 18 0.9%

Total 1,993 ---

18

4. Landlords & tax issues

4.1 Introduction

This section reports on the tax-based issues landlords are facing - and the decisions they

are taking in response. This section also considers how adjustments in tax policy could

influence a landlord’s decision to stay in the PRS or to exit the rental market.

4.2 Organising tax affairs

Firstly, survey participants were asked how they organised their landlord business – this is

shown in the first table below. Secondly, the sources of business advice landlords took on

how best to do this are listed in the table which follows.

Table 4.1: How landlords’ businesses are organised

Base: All landlords

• Over three-quarters (77.7%) of landlords are taxed via self-assessment:

o Essentially, these landlords see themselves as sole traders.

The numbers using alternative mechanisms to self-assessment are small:

• Other than self-assessment, the most commonly used mechanism is to create a

limited company for tax purposes.

No of respondents


I have my landlord earnings taxed via Self-

Assessment (sole trader)

1,549 77.7%

I have set up a UK-based limited company

dedicated to my landlord portfolio

145 7.3%

My landlord business is a registered

partnership or LLP

43 2.2%

I run my business through a formal trust

structure

8 0.4%

I have a non-UK based company dedicated to

my landlord portfolio

3 0.2%

A combination of the above 142 7.1%

None of the above 67 3.4%


Total 1,993 ---

19

• Very few landlords use more complex structures to organise their property

business:

o For example, only around 7% (7.3%) of landlords have set up a limited

company to manage their tax liabilities.

There is certainly no evidence to suggest that offshore-style models are being widely used

by independent landlords:

• Fewer than 1% of landlords (0.2%) who responded to this survey have their landlord

assets organised through an offshore arrangement.

A previous question in this survey asked about portfolio expansion7. If this question is used

as a proxy for growth ambition, then the more ‘growth-oriented’ landlords can be defined

as those who have used BTL finance to purchase “more than five properties”. Among this

group of landlords:

• The proportion of landlords who still use self-assessment falls to 63%;

• The proportion of landlords who have UK registered companies rises to 11%;

• No landlord in this group of expanding businesses stated they have their properties

registered off-shore.

7 See Section 3.2 above.

Key Point 5:

Landlords have very basic tax arrangements. Most landlords simply declare their

earnings via self-assessment rather than have a more formal company structure.

Even among those landlords who have actively chosen to expand their portfolios:

Though this group are less likely to organise tax via self-assessment, almost two-

thirds continue to do so.

20

The next table looks at the sources of the advice landlords have received to help them

manage their property business:

Table 4.2: Sources of advice on managing tax affairs (Multiple responses allowed)

Base: All landlords

• One-quarter (25.3%) of landlords stated they have never been given any external

advice or support in organising their landlord business.

• Accountants were the most common source of advice:

o This encompassed both general advice (45.8%) as well as more specific tax

advice (25.6%).

• Landlord-focused organisations such as the RLA and NLA feature strongly (13.4%).

• Finally, landlords are much less likely to use more general business support

services:

o Just a handful (3.0%) of landlords use these for business advice.

No of respondents


Accountant (general) 912 45.8%

Accountant (specific tax guidance) 510 25.6%

Landlord associations (e.g. RLA, NLA) 268 13.4%

From other landlords 203 10.2%

Solicitor 138 6.9%

Family or friends who are in none of the

occupations listed

77 3.9%

Business advisory service/company 59 3.0%

Other 97 4.9%

Never been given advice 504 25.3%


Total 1,993 100.0%

21

4.3 Impact of tax changes

4.3.1 Tax changes and landlords’ response

Landlords were asked about the impact of the following tax changes on their landlord

business:

1. The reduction in Mortgage Interest Relief (MIR) which will be completely phased

out by April 2020 and be replaced by a basic rate relief tax reduction8.

2. Capital Gains Tax reform which will axe capital gains relief from 18 to just 9

months.

3. Stamp Duty Land Tax reforms. These reforms placed a 3% surcharge on second

home purchases in an attempt to slow down the level of Buy-to-Let purchases.

4. The replacement of the Wear & Tear Allowance with Replacement Relief.

Landlords were asked to score the impact of each of the above reforms on a scale of 1 to 5

– where 1 was “limited impact” and 5 was “great impact”.

The chart below shows the percentage of landlords’ responses which were either a “4” or

a “5”:

8 This is often called “Section 24 relief”

Key Point 6:

Over a quarter of landlords have never sought business advice, including from an

accountant. Almost 90% of this group pay tax via self-assessment. These results

emphasise the lifestyle-based, non-growth orientation of many independent

landlords.

22

Chart 4.1: Landlords and the impact of taxation changes

Base: All landlords

Results are consistent across the various changes:

• Typically, 40-45% of landlords stated each tax change was having a significant

negative impact on their business:

o Though there are differences in scores for the significance of impact for the

individual policies, these are marginal.

These results confirm the findings of other RLA research – see for example the Landlord

Confidence Index:

• It is the cumulation of disadvantageous policies which have negatively hit landlords

rather than one specific tax change.

We went on to ask landlords the changes they had made to their business as a result of

these tax reforms.

Landlords were presented with a long list of options based on price changes, strategic

changes (changing portfolio or target tenant market), investment decisions (switching

in/out of property) and personal choices (trusts, inheritance tax arrangements).

The strategies and actions that landlords had been most likely to take in response to tax

changes are charted below.

40.3%

42.8%

43.6%

44.0%

0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50%

Wear & TearAllowances

Stamp DutyLand Tax

Capital Gains Taxreform

Mortgage InterestTax Relief (MIR)

Landlords responding "some" or "great" impact

23

Chart 4.2: Landlords’ responses to multiple tax changes (Multiple responses)

Base: All landlords (all responses over 10% listed)

The responses to this question highlight the negative impacts the tax changes have had on

the PRS. Among the more common responses to these changes are the following:

• Landlords dropping plans to invest in property:

o Over 30% (30.1%) of landlords dropped plans to purchase more property;

o In addition, one-landlord-in-five (19.7%) stated they would reduce

investment in existing properties.

• Landlords are also considering, either partially or fully, exiting the sector:

o Almost 20% (18.9%) of landlords stated they are selling all or part of their

portfolio.

o Also, over 16% (16.1%) are looking for an alternative investment vehicle to

the PRS for their wealth.

o Finally, almost one-in-five landlords (18.5%) are actively taking steps to

leave the sector – a response consistent with the Landlord Confidence

Index.

19.5%

10.9%

11.9%

16.1%

18.5%

18.9%

19.7%

20.7%

28.5%

30.1%

0% 5% 10% 15% 20% 25% 30% 35%

None of thestated strategies

Incorporate businessinto a limited company

Upgrade property tocharge a premium price

Look for an alternativeinvestment vehicle

Take steps to leave thePrivate Rented Sector…

Sell part of your portfolioto reduce debt…

Reduce investment inproperties you own

Reduce expectations offuture income streams

Increase rents

Changed plans topurchase more property

24

The next sections look in more detail at specific tax changes, followed by their impact on

the PRS.

4.3.2 The broader effects of Stamp Duty Land Tax on the PRS

The survey asked landlords whether Stamp Duty made a difference to landlords seeking to

expand their portfolios:

Table 4.3: The influence of Stamp Duty on adding property to landlords’ portfolios

Base: All landlords

• Almost half (45.1%) of landlords stated the Stamp Duty levy had been a deterrent

(“large influence”) to further investment in property.

• Just one-quarter (25.1%) stated it had made “no difference” to their decision

making.

The survey went on to ask about specific projects which increase the supply of housing:

The survey sought to find out the proportion of landlords who invest in construction/

conversion of property with the specific intention of converting homes to rent.

No of respondents


Stamp Duty is a large influence 888 45.1%

Stamp Duty is some influence 587 29.8%

Makes no difference to my decision making 495 25.1%

Total 1,970 100.0%

Key Point 7:

It is not the impact of one measure which is having a negative effect on landlords

and their continued investment in housing, Instead the desire of many landlords to

leave or reduce investment in the PRS is a cumulation of detrimental tax policies.

For government, the net effect of multiple tax hits has been short-term tax-

revenue gains now threatens the long-term sustainability of the PRS as a home for

investment.

25

We asked about participation in various project types:

• The responses across different project types showed around 30% (29.6%) of all

landlords surveyed had invested in at least one type of residential project.

• About 17% (16.9%) of survey participants had brought a disused property (housing

or shop) back to use for housing:

o This was the type of project in which the largest group of landlords had

been involved.

• Similarly, 11% (11.4%) had converted a large property into smaller units.

We asked landlords whether Stamp Duty had put them off making investment in this type

of project and whether reform would increase the likelihood of making such investment in

future:

Table 4.4: Would reform or exemptions from Stamp Duty Land Tax Levy make it any more

likely you as a landlord would invest in building projects which created homes?

Base: All landlords

Were Stamp Duty to be reformed, then it can be concluded there would be further

interest in investing in building/construction based residential projects:

• Over half (53.7%) stated they would have some interest in investment of this sort

were there reforms making investment more attractive.

• A quarter (25.4%) of all landlords were quite clear that this tax HAD previously put

them off such investment opportunities.

• The tax is more likely to put off those who have had experience of delivering such

conversion/new build projects:

o Among experienced investor-landlords, the proportion who state the tax

puts them off investing in additional projects rises to around 35-40%.

No of respondents


Yes - The tax has put me off getting involved

in construction/conversion type projects

502 25.4%

Maybe - An exemption may make a

difference

561 28.3%

No - No desire to get involved in any such

scheme

662 33.4%

Don't know 255 12.9%

Total 1,980 100.0%

26

4.3.3 Changes in Mortgage Interest Tax Relief

Landlords were asked about the effect of MIR on their business decisions as landlords:

Table 4.5: How changes in Mortgage Interest Tax Relief affected landlord businesses

(Multiple responses allowed)

Base: All landlords

• Over a quarter of landlords (27.4%) stated they had been forced to increase rents

as a result of MIR changes which had affected their profitability.

• A substantial number of landlords (13.1%) reported that their response will be to

leave the sector.

Though not shown in the table above, closer analysis of the data shows:

• About 40% (41.1%) of those who felt they had to cut back on property investment

also put up rents.

4.3.4 Capital Gains Tax and reluctance to sell property

The above looked at how tax changes were making it more difficult for landlords to invest

in property, increasing the likelihood of landlords either reducing their portfolio or exiting

the PRS altogether.

The other tax changes listed above act to reduce profitability and make landlord’s

businesses more marginal. Capital Gains Tax differs, as it acts as a barrier to sell property.

The tax is a market distortion inhibiting the working of the property market - CGT means

landlords hold property in the hope of beneficial changes in tax policy. The short-term

No of respondents


I have had to put up rents to maintain

income

546 27.4%

I had to postpone plans to expand my

property portfolio

492 24.7%

I have had to cut back on investment in

property

448 22.5%

I have decided to leave the sector and put

my wealth elsewhere

262 13.1%

I have had to sell property to reduce my tax

bill

158 7.9%

Total 1,980 100.0%

27

approach CGT engenders is detrimental to housing quality and the quality of stock in the

PRS9.

For this quarter, landlords were asked whether they agreed that they had held property

for longer as a result of the CGT liability they would incur.

Table 4.6: Have landlords held property longer than anticipated because of CGT liabilities?

Base: All landlords

For one-fifth (22.7%) of landlords, this was a not a relevant question as they had not

considered selling property.

However, once this group are removed from the sample and the groups recalculated:

• Over 58% (58.2%) of landlords either “strongly agreed” or “agreed” that they had

held property for longer than envisaged as a result of CGT.

• Less than 10% (8.9%) either “disagreed” or “disagreed strongly” with the

sentiment.

o There were more than six-and-a-half times as many landlords stating they

had, rather than hadn’t, held property for longer than anticipated as a

result of CGT.

9 There is a rational economic reason why these reluctant landlords will not invest further in their property beyond a minimum: by hoping for a favourable change in the tax environment, they act as if the Net Present Value of additional future income streams from any investment will fail to meet the short-run capital expenditure of that investment. As the landlords want to sell the property, the perceived time horizon – wrongly as it turns out - is too short for investment.

No of respondents


Strongly agree 488 24.5%

Agree 408 20.5%

Neither agree nor disagree 505 25.4%

Disagree 116 5.8%

Strongly disagree 22 1.1%

Not Relevant - I have not considered selling

property

452 22.7%

Total 1,980 100.0%

28

To address this market distortion, the survey went on to ask landlords what would be the

preferred policy intervention which would eliminate disincentives to sell their to-let

property:

The chart below plots responses to a question which asked landlords to respond to

suggestions on a scale of 1-to-5 – with 1 being “No influence at all” and 5 being

“Extremely influential”.

The chart below focuses on the proportion responding with a score of 4 or 5.

Chart 4.3: Factors which would be influential in altering the decision on selling property

Base: All landlords

Thus to ‘unblock’ property sales:

• Support amongst landlords was greatest for basic adjustments to CGT – either

increasing the threshold at which CGT is payable (51.3%) or reducing CGT rates

(50.4%).

• Next, rather than the carrot of future CGT reform, the ‘stick’ of increases in future

Inheritance Taxes also scored highly (43.1% believing this would be influential).

26.6%

35.8%

42.3%

43.1%

50.4%

51.3%

0% 10% 20% 30% 40% 50% 60%

Discount in CGT forselling to tenants

(Right to Buy)

Discount in CGT forselling with

tenants in situ

Temporary CGTwindow

Increases in futureInheritance Tax

liabilities

Simple reductionin CGT

IncreasedCGT threshold

Percentage of respondents responding "influential" or "extremely influential"

29

• Note that two possible CGT reforms which have been mooted in policy circles –

discounts in CGT for sales either with (35.8%) or to (26.6%) tenants – came at the

bottom of possible reforms.

Key Point 8:

Each of the various tax reforms identified in this section have hit business

profitability, pushed up prices and meant tenants receive less value for money.

Together, they are prompting something of an exodus from the PRS at a time

when housebuilding for both owner occupiers and social housing residents is way

below the levels necessary to meet demand.

CGT reform is needed to unblock the market for residential property and increase

investment in the private housing stock. The most popular reform would be for

straightforward change.

30

5. Supply side issues

5.1 Introduction

The section looks firstly at landlords’ initial ambitions and motivations in respect to the

PRS. Landlords are then invited to reflect on their experience and give some time-based

perspectives on their initial ambitions and expectations. Finally, their anticipated exit

strategy from the sector is discussed.

5.1.1 Landlords’ ambition & initial goals

Landlords were asked whether they had “ever bought property with the intention of

immediately letting that property to tenants”. In response, 86.5% of landlords replied

“Yes” to this question.

Those that responded “Yes”, were then asked about their most recent major property

investment:

Table 5.1: Time since landlords last purchased a property to let to tenants

Base: All landlords who have bought property specifically to let

From the above table:

• Just 11.4% of landlords made their most recent purchase over the last twelve

months.

• Almost half of landlords (44.4%) who answered this question purchased their most

recent BTL property more than five years ago:

o Over one-in-five (20.3%) bought their last property more than ten years ago.

No of respondents


Less than a year ago 196 11.4%

Between one and three years ago 357 20.7%

Between three and five years ago 386 22.4%

Between five and ten years ago 416 24.1%

Between ten and twenty-five years 349 20.3%


NA 1 0.1%

Total 1,723 100.0%

31

Landlords were then asked about their motivations to enter the Private Rented Sector.

Chart 5.1: Initial reasons for landlords to enter or invest in the Private Rented Sector (PRS)

(multiple responses allowed)

Base: All landlords

The motivations for becoming a landlord are typically lifestyle based:

• Alternative pension arrangements (58.8%).

• Generate a second income (45.3%).

• Creation of a legacy for future generations (27.8%).

The desire to set up a property business was also a common reason (24.5% cited this as a

reason) to purchase that first property.

• However, few saw being a landlord as a gateway to a business in another sector:

o Just over 1% (1.2%) had the initial ambition of creating housing equity for

use elsewhere.

8.8%

1.2%

4.8%

7.0%

15.7%

24.5%

27.8%

45.3%

58.8%

0% 10% 20% 30% 40% 50% 60% 70%

None of the above -circumstances!

Use housing equity tofund/start-up a business

Help pay for a largerproperty for me/my family

Pay forluxuries

Retain a property inwhich I no longer lived

Start up aproperty business

Legacy forchildren/grand-children

Generate an incomeadditional to my job

Alternative orsupplement Pension


32

Landlords were also asked for how long they anticipated being a landlord when they first

moved into the sector – be that by accident or through a deliberate, considered

investment:

Table 5.2: Planned initial timeframe on remaining a landlord

Base: All landlords

Most of those responding to this question envisaged holding their property for a

considerable period:

• Almost half (49.0%) initially saw themselves being landlords for ten years or longer.

• By contrast, less than 10% of respondents (9.8%) saw it being for less than 5 years.

No of respondents


Two years or less 72 3.6%

Between two and 5 years 123 6.2%

Between 5 and ten years 197 9.9%


Had no real view at the time 570 28.6%


NA 25 1.3%

Total 1,993 100.0%

Key Point 9:

The typical landlord who answered this survey is one who decided to invest in

property – at least initially - for lifestyle reasons. For example, as an alternative to a

regular pension and/or to provide a supplement to their income in employment.

These ‘typical’ landlords always saw themselves as investing in property for the

long term.

Very few landlords have bought property in the last year.

33

5.1.2 Landlord - views on their own experiences

The survey asked landlords their current perspectives on their role. They were asked to

agree or disagree with a series of statements on a five-point scale.

Below the proportions of those who either “agree” or “strongly agree” with the

statements are graphed:

Chart 5.2: Current views on running a landlord-based property business (multiple

responses allowed)

Base: All landlords

This set of questions elicited responses which give an insight into what it is like to be a

landlord in 2019.

Landlords continue to see the financial advantages of property compared to alternative

investments:

• They see property rentals offer better returns (57.5% agreeing/agreeing strongly).

• They also feel property offers a more secure form of investment (54.3%).

However, few landlords agreed their business was any less stressful than other forms of

self-employment (19.7%):

• Almost three-quarters of landlords (70.6%) also stated it was now more difficult for

them to achieve their business goals than it was five years ago.

19.7%

41.9%

54.3%

57.5%

70.6%

0% 10% 20% 30% 40% 50% 60% 70% 80%

Being a landlord is lessstressful than other

forms of self employment

I enjoy beinga landlord

Property rental is moresecure than

other investments

Property rentaloffers better returns

It is much more difficult tomeet my objectives as alandlord now than five

years ago

Percentage agreeing with statement

34

5.1.3 Landlords and existing the PRS

The first table in this section gives an indication of the expectation landlords have of

remaining in the PRS before leaving the sector:

Table 5.3: Current envisaged timeframe for remaining in PRS

Base: All landlords

• About 30% (29.3%) of landlords envisage holding their portfolio - at least in part -

for a further 5 years at most.

• A similar proportion (27.2%) envisage holding on for anywhere between 10 and 25

more years.

Among the group who stated in a previous question they originally anticipated being a

landlord for five years or less:

• Over one-third (38.9%) now anticipate being a landlord for a further 5 to 25 years.

No of respondents


Two years or less 205 10.3%

Between two and 5 years 378 19.0%

Between 5 and ten years 406 20.4%


Don’t know 461 23.1%

Total 1,993 100.0%

35

Finally, landlords were asked what they thought the key reasons to exit the PRS would be.

They were given a long list of options. The most common responses are charted below:

Chart 5.3: Key factors likely to influence the decision to exit the PRS (multiple responses

allowed) – all responses identified by 10%+ of landlords

Base: All landlords

The above lists the factors which are – or will be – most likely to explain the reason for a

landlord to exit the PRS:

• Personal or family reasons (39.2%) are expected to be the single most important

factor in deciding to exit.

• Landlords are hoping for tax changes (32.4%) to provide an incentive to exit their

landlord business.

• Around twenty percent (19.9%) of landlords stated they have already started the

process of exiting the sector.

4.0%

3.0%

10.9%

11.4%

11.8%

19.9%

21.6%

28.4%

32.4%

39.2%

0% 5% 10% 15% 20% 25% 30% 35% 40% 45%

Never thoughtabout it

Prefer not to say

Will sell propertywhen I feel the market

has reached a peak

When I reachretirement age

Once current tenant(s)leave I will sell up

I have alreadystarted to exit

the PRS

Health will dictatewhen I sell

Intend to passon business

to partner/children

I will sell up iftax changes provide

an incentive

My decision will befamily/personal based


36

Key Point 10:

Landlords are long term investors and lifestyle entrepreneurs. They are finding

that it is getting tougher to achieve goals and targets in the PRS.

There are many landlords now in the process of either leaving or preparing to leave

the sector. There is further evidence here to suggest a different approach to CGT

could have a considerable impact on the UK housing market.

37

6. Energy efficiency

6.1 Introduction

This is a section which was additional to that planned when this research commenced.

Whitehall departments asked the RLA for their views as a landlord representative on

energy efficiency measures and possible tax breaks.

Whilst the RLA devised the questions, the inclusion of these questions are to provide

government departments with an up to date snapshot of landlord opinion on this topic.

This section begins with a review of past investments in energy efficiency measures,

followed by future investment. The section also considers the key reasons why landlords

are investing in energy efficiency measures. It also reports on the level of investment they

are making.

Finally, landlord views on tax and grant based incentives are considered in more detail.

6.2 Investment in energy efficiency

In England, the Government’s fuel poverty target is based on Energy Performance

Certificates. These rate how energy efficient a property is on a scale of A to G (G being

the most inefficient).

The Clean Growth Strategy set a target to upgrade as many houses to EPC Band C by 2035

“where practical, cost-effective and affordable”. The aim is for all fuel-poor households10

and as many rented homes as possible, to reach the same standard by 2030. Only around

30% of homes presently meet this standard11.

The RLA asked landlords whether they rented properties below this standard i.e. an EPC

rating of D or lower:

• Just over a quarter of landlords (29.7%) stated they did rent out properties at D or

below.

• Almost two-thirds (64%) stated their properties were above band D and so met the

necessary standard:

10 A household is said to be in fuel poverty if (i) it has required fuel costs that are above average (the national median level), and (ii) were that household to spend that amount they would be left with a residual income below the official poverty line. 11 See https://publications.parliament.uk/pa/cm201719/cmselect/cmbeis/1730/173005.htm for more information.

https://publications.parliament.uk/pa/cm201719/cmselect/cmbeis/1730/173005.htm

38

o A small proportion (6.3%) did not know whether they let properties out with

this energy rating.

6.2.1 Recent investment in energy efficiency

Landlords were asked whether they had invested in energy efficiency measures over the

last twelve months:

• Almost half (46.0%) stated they had invested in energy efficiency measures over

the last twelve months.

• A virtually identical proportion (45.5%) stated they had not.

Those who had, were asked which measures they had invested in – the full choice of

options is set out below:

Table 6.1: Landlord investment in energy efficiency over last twelve months (multiple

responses allowed)

Base: Landlords investing in energy efficiency over the last twelve months

• New boilers (63.4%) was the most common investment.

• More than half (55.1%) of landlords who had made energy efficiency improvements

had invested in energy efficient lighting.

No of respondents


Boiler 687 63.4%

Energy efficient lighting 597 55.1%

Window glazing 503 46.4%

Loft insulation 381 35.2%

Energy efficient appliances 331 30.6%

Other heating improvements 226 20.9%

Other insulation improvements 130 12.0%

Cavity Wall Insulation 111 10.2%

Solid Wall insulation 105 9.7%

Micro-generation (e.g. solar panels) 27 2.5%


Other 15 1.4%

Total 1,083 --

39

Of those stating 'other', most of the improvements they listed would fit under the

categories listed above:

• There were mentions of ventilation systems to eliminate damp and mould (PIV).

• Improved doors and porches also featured.

6.2.2 Expected future investment in energy efficiency measures

Landlords were then asked to state whether they were planning to make improvements

over the next one-two year period:

Table 6.2: Landlords planning to make investment in energy efficiency over the next two

years

Base: All landlords

• Only a small proportion (14.8%) of landlords definitely intend to make investments

in energy efficiency over the NEXT 12-24 months.

• There are however a much larger proportion (43.3%) who may make such an

investment.

• Over forty percent (42%) of landlords appear to have ruled out such investment.

No of respondents


Yes, for certain 294 14.8%

Maybe/Not sure 862 43.3%

No 837 42.0%

Total 1,993 100.0%

Key Point 11:

Most landlords rent property above the EPC ‘D’ level. Many landlords have recently

invested in energy efficient measures. Boilers, energy efficient lighting and window

glazing were the key items of investment.

40

The types of improvement landlords are planning to make are set out below. Also included

are the proposed investments by those responding “Maybe/Not sure” to the previous

question:

Table 6.3: Planned energy efficiency investments by type (multiple responses allowed)

Base: Landlords expecting to invest in energy efficient improvements

Among those who are - or maybe - expecting to make such investments over the next 12-

24 months:

• The pattern is very similar to that of those investing in the previous twelve months:

o Boilers, window glazing, lighting and loft insulation all feature strongly.

• Among the 'Other' responses, again many of the answers fit into the above

categories:

o PIV systems again featured in the ‘Other’ category.

The motivations of landlords planning to invest in energy efficiency measures are set out

below. Again, multiple responses were allowed:

No of respondents


Boiler 687 63.4%

Energy efficient lighting 597 55.1%

Window glazing 503 46.4%

Loft insulation 381 35.2%

Energy efficient appliances 331 30.6%

Other heating improvements 226 20.9%

Other insulation improvements 130 12.0%

Cavity Wall Insulation 111 10.2%

Solid Wall insulation 105 9.7%

Micro-generation (e.g. solar panels) 27 2.5%


Other 15 1.4%

Total 1,156 --

41

Chart 6.1: Reasons landlords are planning to invest in energy efficiency measures (multiple

responses allowed)

Base: Landlords expecting to invest in energy efficiency improvements

Business reasons provide a motivation for landlords to invest in energy efficiency:

• Almost three quarters (71%) of landlords stated that such investments made their

properties more attractive to prospective tenants.

• Maintenance of property values (63.1%) was also a strong incentive.

• Almost 60% (57.1%) of landlords stated that a motivation to make such investment

was based on the need to address climate change.

10.3%

4.0%

18.4%

30.8%

33.4%

42.4%

57.1%

63.1%

71.5%

0% 10% 20% 30% 40% 50% 60% 70% 80%

Other

Secured an attractivedeal/financing offer

on the necessary…

Respondingto tenantrequest

A funding grant/tax break makesit a "no-brainer"

To definitelyraise the

EPC rating

To improveenergy efficiency

I believe thatenergy efficiency

benefits the planet

To maintainproperty values

To make a propertymore attractive toprospective tenants


42

We asked all landlords what had been the typical, per property investment on energy efficiency, whenever they had made such an investment:

Table 6.4: Typical per property investment in energy efficiency

Base: All landlords

For those landlords who have made an investment in energy efficiency measures:

• Almost a third (31.3% of valid answers) of landlords spent up to £1,000 on energy

efficiency measures.

• Over a third (38.3%) invested more than £2,000.

No of respondents


Less than £500 210 10.5%

Between £500-£999 229 11.5%

Between £1,000-£1,999 397 19.9%

Between £2,000-£3,500 307 15.4%

More than £3,500 231 11.6%

Other 30 1.5%

Made no such investment 589 29.6%

Total 1,993 100.0%

Key Point 12:

The proportion planning to invest in energy efficiency measures is relatively small –

but with far more landlords in the “not sure” category. Given the type of

investments made, it may be that investment, rather than part of a ‘go green’ plan,

is ‘when necessary’ with green options being chosen.

Landlords recognise both the business case as well as the environmental benefits

of energy efficiency.

43

6.2.3 Funding energy improvements: barriers & support mechanisms

Barriers to investment

Landlords were asked what they saw as being the key limitations to investing in energy

efficiency improvements. The table below sets out the responses:

Table 6.5: Landlords’ key barriers preventing them from investing in energy efficiency

(multiple responses allowed)

Base: All landlords

Cost was the biggest barrier to investment:

• Over half (56.4%) of all landlords stated capital outlay was the major obstacle.

Returns on investment was also a feature:

• The lack of impact investment would have on EPC ratings was seen as a barrier to

around a third (32.7%) of landlords.

No of respondents


Cost: capital outlay prohibitive 1,125 56.4%

Investment would have only small benefits

on EPC rating

652 32.7%

I can't put rents up to fund improvements 559 28.0%

Disruptive to tenants 525 26.3%

Energy efficiency improvements would not

increase property values

458 23.0%

Scrapping of existing support (e.g. Green

Deal) put me off

325 16.3%

Have made investment in the past and now

feel my portfolio is "green enough"

317 15.9%

Applying for tax breaks or grants was too

complex

242 12.1%

Energy efficiency is just a phrase which

means "more costs"!

207 10.4%

Investment not part of my business plan 128 6.4%


Other 59 3.0%

Total 1,993 --

44

• An inability to put rents up to cover the investment was a barrier to over one-in-

four (28%) landlords.

Finally:

• A number of landlords (15.9%) cited previous investment and a sense that their

properties were now sufficiently energy efficient.

Access to support mechanisms

Landlords were asked if they had ever claimed either (i) a tax break or (ii) a direct grant

to pay for or support the purchase of an energy efficiency improvement for their rented

properties:

• Only a few landlords - just over 10% (11.8%) - had accessed a grant or tax break to

fund energy improvements.

• For landlords of single properties, the proportion falls to just 6%.

With over 85% (88.2%) having never applied for such a scheme or break, there are

insufficient responses to judge any scheme’s ease of access and complexity.

However, landlords did share their views on possible future schemes. They were asked

whether a tax or grant scheme would make a difference to their decision to invest in

energy efficiency:

Table 6.6: Views on a tax/grant scheme to increase investment in energy efficiency

Base: All landlords

No of respondents


Such a scheme would make a difference to

my decision

843 42.3%

Though I am investing in energy efficiency

anyway, such a scheme would be of help

147 7.4%

It would depend on the scheme and its

eligibility

589 29.6%

Such schemes are “a waste of time” 58 2.9%

My properties are at a sufficiently high EPC

rating for me to not worry about further

investment

335 16.8%

Other 21 1.1%

Total 1,993 100.0%

45

Most landlords see value in a grant scheme or tax break:

• Almost half (49.7%) believed it would make a positive impact.

• A further 30% (29.6%) thought the opportunity to make an impact would depend on

the "fine print" - the nature of the scheme and its eligibility rules.

• Only around a fifth of landlords (19.7%) did not think a grant or tax-based scheme

would encourage them to increase their investment in energy efficiency.

Crucially:

Of those who stated in a previous question that they were not planning to make any

investment in energy efficiency over the next 12-24 months:

• Over 70% (71.9%) stated a tax/grant scheme would make a difference12 to their

decision.

Finally, landlords were asked whether a grant-based or a tax-relief based system would be

more useful.

Table 6.7: Preferences on how any support scheme should be delivered

Base: All landlords

Over a third (35.9%) had no preference or views on the best way to deliver any form of

support. Among those who did give a view:

• There is a fairly even split between grants and tax-relief as a preference to support

energy efficiency investment.

• However, national schemes - be they tax-based or grant-based - have a clear edge

over a local approach.

12 This includes those who said it would depend on any scheme's fine print.

No of respondents


Tax relief-based scheme 588 29.6%

Nationally run grant scheme 425 21.4%

Locally run grant scheme 261 13.1%

Doesn't matter 297 15.0%


Total 1,986 100.0%

46

Key Point 13:

Not surprisingly, capital costs and limited returns are the main inhibitors to energy

efficient investment. Only around one-landlord-in-ten had previous experience of

accessing government (national or local) support to help bridge this gap between

outlay and return.

There was clear backing among landlords for a support scheme. However, many

would need to see details of any scheme first. There is clear evidence that such a

scheme could encourage those not planning to invest to do so.

A national scheme was preferable to a local one.

47

7. Potential policy initiatives

7.1 Introduction

This final section reviews some potential tax policies which could have an impact on the

PRS. The support for these changes within the PRS provides the RLA, soon to become the

NRLA, with an evidence base for future campaigns and government discussions.

Note that these questions were answered not just by landlords, but all those who

participated in the survey including letting agents and other supporting PRS professionals.

Though the responses in this section are from a wider base, the proportion of landlords in

the sample is so high that it makes no difference to the analysis although the percentages

may slightly differ.

As with the previous section, these questions were drawn up at the time a General

Election was widely anticipated – but not yet called13.

Before considering specific policy proposals, this section begins with a review of key

concerns and priorities from a policy perspective.

7.2 Landlords: concerns and key ideas

The table below highlights the concerns facing the PRS as the 2019 General Election

loomed on the horizon.

Survey participants were asked what they considered to be the key issues facing the PRS.

Unlike other similar questions in this survey, this time only one factor could be selected:

13 The fieldwork was closed when the December 2019 election date was set.

48

Table 7.1: Biggest single issue presently facing the PRS


• With a General Election in the offing – the largest group of PRS representatives in

the survey were worried about the policies of a newly mandated government

(45.2%).

• There was less concern about further Stamp Duty (1.8%) or CGT (6.7%) changes.

• Changes to the cost of finance was also a concern to just a few (3.5%) of those who

completed the survey.

Of those responding “Other”, the following were most common:

• The impact of Brexit.

• Section 21 abolition.

• Landlord licensing and associated costs.

No of respondents


A new government introducing their policies

in the sector

921 45.2%

The introduction of Making Tax Digital for

income tax

375 18.4%

The growing impact of Section 24 204 10.0%

Capital Gains Tax changes 137 6.7%

The current government bringing in future

changes

103 5.1%

Ongoing changes in the cost of finance 71 3.5%

Stamp Duty changes 37 1.8%

Other 189 9.3%

Total 1,993 100.0%

49

Survey participants were asked to identify, from a list, what they considered would be the

most beneficial changes for the PRS. This time participants were able to select up to three

changes they would wish to see:

Table 7.2: Support for potential changes to the PRS (selected up to three responses)

Base: All participants

• Reversing recent MIR (48.7% of respondents) changes and reducing CGT rates

(48.1%) were seen as the most beneficial supply-side policies.

• Reform (rather than reduction) of Stamp Duty was also a well-supported measure:

o Over a third of respondents (38.3%) identified it as one of their three most

beneficial actions – this was some way behind the afore mentioned MIR/CGT

propositions.

• Reform of the LHA cap was not seen as the single most beneficial action by many

(12.4% of survey participants):

o This should not be interpreted as meaning reform would be insignificant for

those who let property to this market segment.

Among the “Other” responses, many could be placed into the above categories. There

were also the following:

• Incentives to encourage development of brownfield opportunities.

• Treat landlords as entrepreneurs and small businesses.

No of responses


Reverse recent MIR (Section 24) reforms 993 48.7%

Reduce CGT rates permanently 979 48.1%

Equalisation of Stamp Duty rates for

landlords

780 38.3%

Extend tax reliefs -wear and tear schemes 487 23.9%

New tax relief schemes 394 19.3%

Introduce a window for CGT relief/rebate on

property sales

375 18.4%

Extend tax reliefs - energy efficiency 365 17.9%

Reform of LHA rate cap for benefit

claimants

253 12.4%

Other 66 3.2%

Total 2,037 --

50

• VAT relief/zero rating on improvements and refurbishments to property.

7.3 Views on specific policies and proposals

This section asked a number of specific questions related to proposed reforms of two key

taxes:

7.3.1 Possible Stamp Duty reform

Participants were asked whether they thought Stamp Duty was a brake on landlord

purchases and so restricting the supply of homes to rent:

Table 7.3: Would abolition or reduction of the Stamp Duty levy be an effective way of

increasing the supply of available houses to rent?


There is considerable support for this policy - landlords would be encouraged to purchase

more property as a result of reform on this purchase tax:

• One-third (33.1%) of respondents felt the abolition of Stamp Duty would lead to an

increase in homes in the PRS.

• Nearly a third (29.2%) of responses additional to the above agreed that a reduction

- rather than abolition - would also be effective in increasing supply.

• One-in-five landlords (21.7%) supported the policy depending on the level of

reduction.

No of respondents


Yes: a reduction in Stamp Duty would lead

to an increased supply of rented homes

589 29.2%

Yes: but Stamp Duty levy needs to be

abolished rather than reduced

669 33.1%

Depends on the level of reduction 439 21.7%

It would make little difference 238 11.8%

It would make no difference 85 4.2%

Total 2,020 100.0%

51

Previous research by the RLA14 found support for Stamp Duty reform as a mechanism to

encourage the sale and purchase of properties with tenants in situ. In this previous

research, the RLA argued that this reform could be a mechanism which reduces Section 21

use15. This issue was revisited in this survey.

Those completing the survey were asked to respond to the following proposition: Buyers of

property with tenants in situ could reclaim Stamp Duty - provided tenants remained for

at least 12 months

Table 7.4: Agreement the above would encourage landlords to purchase and/or keep

property in the rented sector?


• Over one-third (35.8%) of survey participants felt this policy would help retain

property in the PRS.

• There was further support (23.8%) dependent on the level of duty which could be

reclaimed.

• There was a high proportion of "Don't knows" (20.5%) which indicates further

explanation of the policy could yield increased support.

14 RLA (2019) Possession Reform in the Private Rented Sector: Ensuring Landlord Confidence. Manchester: Residential Landlords Association 15 That is, the issuing of Section 21 notices in order to sell a vacant property

No of respondents


Yes, the policy would encourage the

purchase of property with tenants in situ

724 35.8%

It would depend on the level of Stamp Duty

which could be reclaimed

482 23.8%

No, the policy would make no difference 403 19.9%

Don't know/Not sure 414 20.5%

Total 2,023 100.0%

52

7.3.2 Views on possible Capital Gains Tax reform

The first question picks up on the scenario of selling property with tenants in situ. The

table below shows the level of support for CGT exemptions on the sale of any such

property:

Table 7.5: Would a CGT exemption (all or part) encourage the sale of property with

tenants in situ?


CGT reform is the policy initiative which could have the greatest support among the

sample who participated in this survey:

• Almost half (48.7%) saw this reform as being of clear benefit to the PRS.

• Again, there is a significant number (26.4% in this example) who felt the benefits

depend on the extent of the rebate on offer.

• Just twelve percent (12.0%) felt this approach would make no difference at all.

We also asked about “Right to Buy” proposals – linking the idea of a tenant “right” to

purchase a privately rented property with CGT incentives for the selling landlord.

For example, the tenant could use part of an equivalent CGT bill to purchase the

property. The landlord would receive a lower (or zero) CGT bill on the sale of the property

to the tenant.

When this idea was put to landlords, they responded as follows:

No of respondents


Yes, such a policy could increase sales with

tenants in situ

984 48.7%

It would depend on the level of CGT rebate

on offer

533 26.4%

No, this policy would make no difference 243 12.0%


Total 2,021 100.0%

53

Table 7.6: Would a CGT-Right to Buy linkage as described above encourage landlords to

sell property to tenants?


The so-called "Right to Buy" has caused controversy - and concern among landlords. This

question shows opportunity for a 'middle ground' to develop:

• Almost half of those (49.1%) responding feel a non-compulsory right-to-buy could

provide acceptable incentives to sell through CGT reform.

• A further 10% (10.6%) were even more positive about the initiative.

No of respondents


Yes, it could - BUT landlords need the right

to retain the property should they so wish.

994 49.1%

Yes, this would encourage landlords to sell

property

215 10.6%

Depends on the CGT rate reduction on offer 182 9.0%

No, this policy would not encourage

property sales

404 20.0%

Other 17 0.8%


Total 2,025 100.0%

Key Point 14:

The survey was undertaken at a time of heightened uncertainty for those in the

PRS. New governments have a mandate for change. At the time of writing,

landlords lacked political friends.

The result of the policy kite-flying indicates that the PRS is open to tax-based

innovation which benefits the sector. This includes Right to Buy. That support

however is highly sensitive to the small print and overarching intentions of those

policies. The support is better described as an “Option to Buy” when a landlord

wishes to sell.

54

7.4 …and finally

7.4.1 A question on Brexit

No survey undertaken in Autumn 2019 would be complete without a question on Brexit. All

participants were asked to give their thoughts on the likely impact of Brexit.

The survey fieldwork was undertaken while the negotiations between the EU and UK were

still ongoing. A draft deal was agreed just prior to the fieldwork for this survey closing.

Table 7.7: Likely impact of Brexit on the Private Rented Sector?

Base: All participants

As is fitting, the question was divisive and open to interpretation:

There are far more respondents who are negative about Brexit than there are respondents

who are positive:

• Almost 6% (5.9%) of participants in the survey see Brexit as being positive or very

positive;

• However, 28% were "negative" or "very negative" towards Brexit.

That said:

• The largest share of the responses (35.3%) was a "makes no difference" response.

• A large proportion responded either "Don't know" or "Please don't ask".

Perhaps this result shows there is as much uncertainty amongst landlords as any other

business. With the general election delivering the Conservatives a clear majority, landlord

attitudes to Brexit can be retested when the final terms of the UK’s withdrawal are

confirmed.

No of respondents


Highly positive 38 1.9%

Positive 82 4.0%

Won't make a difference 717 35.3%

Negative 353 17.4%

Highly negative 215 10.6%


Please don’t ask me about Brexit...! 200 9.9%

Total 2,029 100.0%

55

8. Key point summary and recommendations

8.1 Key point summary

This section brings together the key points developed in the main body of the survey

report.

8.1.1 Landlords: survey profile

8.1.2 Landlords & finance

Key Point 1:

Even though void periods continue to be low, landlords feel that the prospects for

the PRS are somewhat bleak: Landlords feel unable to increase rents and more

landlords are planning to at least reduce their portfolios.

There has been a marked decline in the confidence of landlords in London. This

cannot be coincidence given the additional pressures of rent control proposals

from the Mayor of London’s office.

Key Point 2:

The above shows landlords share many characteristics with the UK’s Small and

Medium Enterprise (SME) sector. Many landlords are lifestyle focused – they have

low borrowing and have had no wish to expand their portfolio significantly via

further borrowing.

56

Key Point 3:

As with an analysis of SMEs in other sectors, a small but significant proportion of

landlords have taken advantage of BTL finance to expand their portfolios. Rental

income has allowed expansion with lower debt levels for those who have pursued

growth-oriented strategies.

Key Point 4:

At first glance it would seem the financial position of landlords is secure – over

three quarters of landlords are happy that income is covering costs and a high

proportion of landlords have low levels of debt.

However, whilst many landlords are [virtually] debt free and profitable, other

landlord businesses are more precarious: It is not just a question of finding tenants

– profitability is linked to the current low cost of financing their expansion.

If there were a disruption to the way many landlords are now organised – for

example were interest rates to rise, or a rent control regime introduced - the

evidence here indicates many landlord businesses may struggle to remain in profit.

57

8.1.3 Landlords and tax issues

Key Point 5:

Landlords have very basic tax arrangements. Most landlords simply declare their

earnings via self-assessment rather than have a more formal company structure.

Even among those landlords who have actively chosen to expand their portfolios:

Though this group are less likely to organise tax via self-assessment, almost two-

thirds continue to do so.

Key Point 6:

Over a quarter of landlords have never sought business advice, including from an

accountant. Almost 90% of this group pay tax via self-assessment. These results

emphasise the lifestyle-based, non-growth orientation of many independent

landlords.

Key Point 7:

It is not the impact of one measure which is having a negative effect on landlords

and their continued investment in housing, Instead the desire of many landlords to

leave or reduce investment in the PRS is a cumulation of detrimental tax policies.

For government, the net effect of multiple tax hits has been short-term tax-

revenue gains now threatens the long-term sustainability of the PRS as a home for

investment.

58

8.1.4 Supply side issues

Key Point 8:

Each of the various tax reforms identified in this section have hit business

profitability, pushed up prices and meant tenants receive less value for money.

Together, they are prompting something of an exodus from the PRS at a time

when housebuilding for both owner occupiers and social housing residents is way

below the levels necessary to meet demand.

CGT reform is needed to unblock the market for residential property and increase

investment in the private housing stock. The most popular reform would be for

straightforward change.

Key Point 9:

The typical landlord who answered this survey is one who decided to invest in

property – at least initially - for lifestyle reasons. For example, as an alternative to a

regular pension and/or to provide a supplement to their income in employment.

These ‘typical’ landlords always saw themselves as investing in property for the

long term.

Very few landlords have bought property in the last year.

59

8.1.5 Energy efficiency

Key Point 10:

Landlords are long term investors and lifestyle entrepreneurs. They are finding

that it is getting tougher to achieve goals and targets in the PRS.

There are many landlords now in the process of either leaving or preparing to leave

the sector. There is further evidence here to suggest a different approach to CGT

could have a considerable impact on the UK housing market.

Key Point 11:

Most landlords rent property above the EPC ‘D’ level. Many landlords have recently

invested in energy efficient measures. Boilers, energy efficient lighting and window

glazing were the key items of investment.

Key Point 12:

The proportion planning to invest in energy efficiency measures is relatively small –

but with far more landlords in the “not sure” category. Given the type of

investments made, it may be that investment, rather than part of a ‘go green’ plan,

is ‘when necessary’ with green options being chosen.

Landlords recognise both the business case as well as the environmental benefits

of energy efficiency.

60

8.1.6 Potential policy initiatives

Key Point 13:

Not surprisingly, capital costs and limited returns are the main inhibitors to energy

efficient investment. Only around one-landlord-in-ten had previous experience of

accessing government (national or local) support to help bridge this gap between

outlay and return.

There was clear backing among landlords for a support scheme. However, many

would need to see details of any scheme first. There is clear evidence that such a

scheme could encourage those not planning to invest to do so.

A national scheme was preferable to a local one.

Key Point 14:

The survey was undertaken at a time of heightened uncertainty for those in the

PRS. New governments have a mandate for change. At the time of writing,

landlords lacked political friends.

The result of the policy kite-flying indicates that the PRS is open to tax-based

innovation which benefits the sector. This includes Right to Buy. That support

however is highly sensitive to the small print and overarching intentions of those

policies. The support is better described as an “Option to Buy” when a landlord

wishes to sell.

61

8.2 Policy conclusions and recommendations

The survey focused on finance and tax issues and the resulting impact on the supply of

housing in the PRS. The final section of the report looked at the opinion of the wider PRS

family to various ideas and opportunities to adjust policy.

In addition, the survey investigated landlords attitudes to incentives to invest in energy

efficiency measures. This is in response to the government’s aim to meet wider carbon

emission targets, which incorporate the need to address fuel poverty.

The following observations summarise the survey findings from a policy perspective:

8.2.1 Profile of landlords & landlord confidence

Overall confidence among landlords continues to fall. Uncertainties of future market

conditions has led to a particularly noticeable fall in confidence in London.

The effect of this ongoing loss of confidence has been to see increasing proportions of

landlords plan to either reduce their portfolio or exit the sector altogether. The gap

between existing landlords who are planning to sell property and those who are planning

to buy is continuing to widen.

In addition, almost half of all landlords have no plans to raise rents over the next twelve

months. This is despite continued demand for private sector rented housing – as reflected

in the continued fast turnaround of vacant properties.

8.2.2 Landlords and finance

The big take-away from this section are the similarities between landlords and

entrepreneurs in other sectors.

Just as many small business owners have lifestyle reasons for being entrepreneurs, it is the

case that many landlords, though they may have expanded their business, often let

property with modest aims and ambitions.

A smaller group of landlords however have a “growth oriented” perspective on their

property business. They have taken advantage of generous lending conditions and light

touch banking scrutiny to build a more substantial portfolio of properties.

For many landlords – whichever of the above groups they fall into - their business model

has been based on low debt financing costs, and a continued demand for housing in the

PRS. Were either of these to no longer hold, or the property market was subject to a

sudden market shock, the robustness of this approach may be tested.

62

8.2.3 Landlords and tax issues

Independent landlords who typify the membership of organisations such as the RLA tend to

have a basic approach to tax management. Few also seek business advice beyond that of

their accountant.

The evidence collected in this, and other surveys by the RLA, indicates that rather than

any one tax change, it has been the cumulative effect of changes across the tax spectrum

which has lowered confidence. These changes have also reduced the ability of landlords to

achieve their self-defined business goals and prompted an increasing proportion of

landlords to leave (or consider leaving) the sector.

Tax changes have also prompted rent increases whilst landlords’ financial investment in

their properties has also reduced. Many landlords who participated in this survey stated

they would also be better disposed to invest in construction and conversion projects were

the tax structure they face different. Such investment would increase housing supply.

However, the current tax regime works against such entrepreneurialism.

It may seem paradoxical that whilst other tax changes are prompting landlords to exit the

market, Capital Gains Tax means landlords are holding property for longer. But CGT is

distorting the housing market and lowering investment in the properties which are let in

the PRS.

8.2.4 Supply side issues

This section delved into the changing aims and ambitions of landlords a little deeper.

Pension top ups and additional income are the modest motivation for many landlords.

Note that despite the modest ambitions of many, or most landlords, they are finding it

much more difficult to realise their ambitions now than they did five years ago. They are

stressed by the pressures of being a landlord and around 30% of landlords wish to be out of

the sector within the next five years.

If policy has the objective to either (i) release property presently held in the PRS or (ii)

encourage the trade of property from one landlord to another more likely to invest and

improve property: the evidence here suggests reducing CGT, rather than increasing other

taxes, would be the most effective and market efficient mechanism to stimulate the

Private Rented Sector.

8.2.5 Energy efficiency

Almost two-thirds of landlords let property which meets current EPC targets set out in the

government’s Clean Growth Strategy.

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Landlords have a track record in investing in energy efficient measures – there is a

business case for doing so and many landlords recognise the wider importance of energy

efficiency.

Boilers, lighting and window glazing have been the most likely forms of investment.

Evidence supports (but is not conclusive) that rather than a programme of green efficiency

measures, landlord investment is on a “as and when” basis. This observation does not of

course reduce the importance of the green perspective landlords take when making such

expenditure.

It does however create an opportunity for policy intervention to be additional by bringing

forward investment.

Tax breaks or grants can play a role in encouraging more green investment. This is

certainly clear from the survey results. However, to maximise the impact of any such

scheme, landlords would need to be convinced of that scheme’s value.

It should also be remembered that any such policy will be introduced at a time when

landlords are facing repeated tax hikes. Landlords are needing a reason to stay in the

sector. This will need to be factored into any offer the government may make to landlords

8.2.6 Potential policy developments

Given the pace of recent change, and what was an upcoming election at the time of the

survey, landlords were nervous about the further damage a newly mandated government

could cause.

Reversal of the phase-out of MIR, followed by CGT reductions were the key changes

landlords wished to see. When asked about specific tax policy reforms:

• There was a strong belief Stamp Duty reforms would lead to additional landlord

investment in the PRS.

o Previous answers indicated a significant proportion of landlords would invest

in construction/conversion projects if Stamp Duty were reformed. Thus,

reform would further increase the supply of homes in the PRS.

• There was also support for both Stamp Duty and CGT reforms to provide a

mechanism for encouraging property sales with tenants in situ.

• CGT reforms could also be used imaginatively to provide opportunities for an

“Option to Buy” policy for tenants, with CGT reductions for property sales.

Landlords would of course have to want to sell property

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As always with these policy initiatives there is caution about the level of support once the

detail (and generosity) of the policy is calculated.

However, all these ideas would seem to have some merit in further investigation.

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