UK's tax system encourages short-term lets over long-term

Author: Rent Guarantor


The current tax system is beginning to prove more supportive of investors of short-term lets rather than long-term lets, according to property body the Residential Landlords Association (RLA). Recent analysis by The Guardian also highlights that in some areas of England, some 25% of property listings are for short-term lets, suggesting even fewer homes could soon be available for long-term tenants.

In addition to this, research by ARLA Propertymark shows that more and more landlords are switching their BTL properties from the long-term sector, to the short-term.

Taken together, this highlights that more landlords are finding the short-term lettings sector more financially attractive than the long-term market. This is terrible news for the UK’s growing army of tenants. Indeed, the latest report from the Royal Institution of Chartered Surveyors (RICS) highlights that while tenant demand is on the rise, the number of new landlord instructions is declining.

Mortgage Interest Relief phased out for long-term lets

The RLA points out that following the phasing out of mortgage interest tax relief for BTL property investors, this new status, where property investors can’t reclaim mortgage interest on their mortgage payments, only applies to investors of long-term lets. Where an investor lets their property or properties out on a short-term basis, they are still able to reclaim that mortgage interest.

In some cases, the inability to claim back that mortgage interest has made it financially unviable for many investors to remain in the long-term BTL market and encouraged them to sell their property. This has the effect of reducing the stock of long-term rental homes available for the still rising number of tenants, across the UK.

“Government policy is actively encouraging the growth of holiday homes at the expense of long-term homes to rent which many families need,” said RLA Policy Director, David Smith. “This is completely counterproductive, making renting more expensive and undermining efforts to help tenants save for a house of their own.”

One quarter of advertised properties short-term lets

With those tax implications at the forefront of many people’s minds, further analysis of data by The Guardian, shows that in some UK regions, up to 25% of all property rental listings are short-term lets. The highest concentration the research uncovered was in Edinburgh Old Town, where 29 out of every 100 properties listed for rent is a short-term let.

Of course, some areas of the UK remain untouched by the AirBnB effect. But, separate research from ARLA highlights that of the almost 25% of all landlords who rent their properties out on a short-term let basis, 12% of those switched over to that sector from long-term rentals.

That equates to around 50,000 rental properties no longer being available in the long-term let sector after landlords switch to the more lucrative short-term let option. Looking, ahead, the industry body said that could rise as high as 470,000 properties being withdrawn from the long-term rental sector.

If that worst-case scenario were to unfold, that would be a huge blow for the UK’s tenants at a time when property prices are still high and rent continue to increase.

“The growth in short-term lets is particularly concerning for the traditional private rented sector. As landlords are continuously faced with increased levels of legislation, it’s no surprise they are considering short-term lets as a chance to escape this,” said ARLA Propertymark’s CEO, David Cox. “Unless the sector is made more attractive, landlords will continue to exit the market resulting in less available properties and increased rent costs.”