Changes to taxes and regulations are having a detrimental effect on landlords and risking many going out of business, a report by the Intermediary Mortgage Lenders Association (IMLA) has found.

In an investigation into the private rented sector (PRS), the report has found that regulatory and tax changes have become a growing burden for private landlords, which have in turn increased their operating costs.

Although the additional costs have been offset by falling mortgage rates up until recently, the sharp rises in buy-to-let mortgage rates risks making many business models uneconomic.

The restriction of mortgage interest tax deduction for landlords to the basic rate of income in 2015, the lack of clarity around proposals to require enhanced efficiency standards and the changes to provisions in The Renters (Reform) Bill, which is currently before parliament, have all been listed as potentially adding to the operating costs for PRS landlords.

Although IMLA does state that there is no evidence of a PRS mass exodus, the loss of any rented properties will affect supply, causing rent to rise at the detriment of the tenant.

A cited report by Octane Capital claims that landlords needing new deals have seen, on average, the cost of monthly interest payments jump by 75.7% over the last year.

Furthermore, IMLA found that in the year to April, existing private rents (as measured by the ONS) were up 4.8%, and newly agreed rents (as measured by Homelet) were up 9.9%, both under consumer price inflation, which was 8.7% in April.

Executive director at IMLA, Kate Davies, commented: “The PRS serves some some 4.6 million households – the equivalent of 11 million people – and represents approximately 19% of the housing market. Maintaining the health of the sector is therefore essential if we are to manage the UK’s chronic housing shortage. Our report highlights the tough environment that landlords currently find themselves in and, more concerningly, the outlook for the PRS and tenants if policymakers’ approach to the sector doesn’t change.

“Demand for rented housing is clearly high, and measures to increase tenant protections are important. However, the focus now needs to be on prompting increased investment in the sector and supporting landlords, whose operating costs risk becoming unaffordable. If we don’t get the balance right, the result will be higher rents, and lower availability of properties – both of which are bad news for tenants and landlords.”

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