What policy changes or market shifts could stem the flow of landlords leaving the UK rental sector?
Quick Answer
Reversing Section 24, reducing SDLT surcharges, and streamlining regulatory burdens could make the UK rental sector more attractive to landlords, stemming the current outflow.
## Policies That Could Improve Landlord Retention
The most effective policy changes to encourage landlords to remain in the UK rental sector involve improving profitability and reducing regulatory uncertainty. Reversing or modifying Section 24 of the Finance Act 2015, which removed mortgage interest relief for individual landlords, is a primary candidate. Since April 2020, individual landlords can no longer deduct mortgage interest from their rental income before calculating tax, instead receiving a 20% tax credit. For higher-rate taxpayers, this significantly reduced net income, making many properties unprofitable, particularly those with high loan-to-value mortgages. Reinstating full mortgage interest deductibility would directly boost cash flow for thousands of landlords. For example, a property generating £1,000/month rent with £500/month mortgage interest, under current rules, a higher-rate taxpayer (£600 tax) would be worse off than if they could deduct the interest before tax (£400 tax), increasing their net position by £200 per month.
Another significant policy lever is the Stamp Duty Land Tax (SDLT) regime. From April 2025, the additional dwelling surcharge increased to 5%. This additional cost on second properties adds a substantial barrier to entry and expansion for landlords. Reducing or removing this surcharge would lower the upfront capital required for new acquisitions, making property investment more appealing. For instance, the 5% SDLT surcharge on a £250,000 buy-to-let property adds £12,500 to the purchase costs, directly impacting the return on investment (ROI on rental renovations).
Furthermore, adjustments to Capital Gains Tax (CGT) on residential property could alleviate the financial disincentive for landlords to sell. Currently, higher/additional rate taxpayers face a 24% CGT rate, with an annual exempt amount of only £3,000. Reducing these rates or increasing the annual exempt amount would offer landlords a more favourable exit strategy, potentially encouraging them to sell properties to new investors rather than consolidate their portfolio, thereby maintaining stock in the rental market.
## Market Shifts That Could Encourage Investment
Beyond policy, specific market shifts could naturally make property investment more attractive. A sustained decrease in the Bank of England base rate, currently at 4.75% as of December 2025, would directly lower mortgage costs. Lower rates would reduce landlord overheads, making properties more profitable even under current tax regimes like Section 24. For a typical BTL mortgage at 5.5% on a £200,000 loan, a 1% reduction in interest rate could save a landlord approximately £167 per month in payments, directly improving cash flow and stress test (BTL investment returns).
Stabilisation or reduction in regulatory burdens and associated costs would also play a role. The ongoing consultations around EPC standards, potentially requiring a C rating by 2030, and the Renters' Rights Bill abolishing Section 21, introduce uncertainty and potential additional expenditure for landlords. Clarifying regulations, providing financial support for energy efficiency upgrades, or offering a longer, more phased implementation of new rules would offer more predictability, crucial for long-term investment planning. For instance, the cost of upgrading a typical terraced house from an EPC E to C could range from £5,000 to £15,000 depending on the property, impacting landlord profit margins significantly. Addressing the cost-effectiveness of landlords' investments are key benefits of buy-to-let.
Finally, a market shift towards stronger tenant demand coupled with rental yield growth that outpaces interest rate rises would naturally make the sector more attractive. While this is less policy-driven, a robust economic environment fostering employment and population growth would support strong rental markets, increasing rental income and offsetting rising costs. Considering rental yield calculations will always be central to investor decisions.
## Investor Rule of Thumb
Profitability and predictability are paramount; policies that enhance these, such as reversing Section 24 or reducing capital outlays, are most likely to stem the landlord outflow.
## What This Means For You
Most landlords don't exit the market without careful consideration of their profitability. If you're contemplating your portfolio's future or looking for strategies to enhance your investment's resilience against regulatory changes, understanding these potential shifts is vital. We continually analyse these dynamics to pinpoint opportunities and mitigate risks within Property Legacy Education.
## Steve's Take
Having built a substantial portfolio myself, I've seen first-hand how much policy shifts can impact the bottom line. Reinstating full mortgage interest deductibility for individual landlords would be a significant move. The current 20% tax credit under Section 24 penalises higher-rate taxpayers severely, making many perfectly good properties unsustainable for longer-term holds. Couple that with the increased 5% SDLT surcharge from April 2025, and you've got higher entry costs and lower returns.
What landlords need is stability and fair taxation. Reducing CGT rates would also encourage property transactions within the investor community, ensuring good stock remains available. These changes would provide a much-needed boost of confidence, encouraging existing landlords to stay and new ones to enter.
Steven's Take
Having seen the impact of Section 24 firsthand on my own portfolio structure, I can tell you that the single biggest policy change to stem landlord exits would be addressing mortgage interest relief. When Section 24 was phased in, many individual landlords, especially higher rate taxpayers, found their net income significantly eroded. I know people who held properties purely for capital growth, now finding their rental income insufficient to cover costs after tax. Shifting properties into limited companies became a common strategy for some, but not everyone was in a position to do that, and it comes with its own costs and complexities. From my perspective, reinstating full mortgage interest deductibility for individual landlords would immediately improve cash flow and make buy-to-let viable again for those who felt squeezed. It's not just about attracting new investment, it's about making existing portfolios sustainable, especially in a higher interest rate environment where typical BTL mortgage rates are 5.0-6.5%. The SDLT surcharge removal would also help, but that's more about new acquisitions or growth, whereas Section 24 affects every individual landlord with a mortgage right now.
What You Can Do Next
Review your current portfolio: Assess how your profit margins are affected by Section 24 by calculating your net rental income after the 20% mortgage interest tax credit, and how this would change if interest was fully deductible.
Engage with landlord associations: Join and support organisations such as the National Residential Landlords Association (NRLA) which actively lobby the government for policy changes like the reversal of Section 24.
Consult your tax advisor: Discuss potential strategies for optimising your tax position, including considering a company structure for new acquisitions or exploring inheritance tax planning, with a qualified property tax specialist.
Monitor legislative updates: Regularly check government publications and reputable property news sources for any consultations or proposed changes to landlord tax and regulatory policy, particularly concerning Section 24 and SDLT.
Re-evaluate investment strategy: Calculate the impact of the current 5% additional dwelling SDLT surcharge and CGT rates (24% for higher rate taxpayers, £3,000 annual exempt amount) on any potential future acquisitions or disposals to ensure they align with your investment goals.
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