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U.K. Tax Changes Put Off Potential Landlords

A monthly survey of real estate professionals shows a decline in new rental units

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Flats for rent in London

Peter Dazeley / Getty Images
Flats for rent in London
Peter Dazeley / Getty Images

New rental units across the U.K. have been in decline for nine consecutive quarters, a trend threatening to exacerbate the country’s housing shortage, according to a survey of British real estate professionals.

A significant majority of the 300-plus agents and builders surveyed by the Royal Institute of Chartered Surveyors reported a decline in new homes for rent, which the industry has attributed, in part, to recent tax hikes on landlords, according to the results released Thursday. The worsening rental trend comes amid an already tight housing market, where the inventory of homes for sale remains at a historic low.

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In April, the government effectively increased taxes on landlords by phasing out a mortgage interest deduction on buy-to-let properties in addition to new energy efficiency regulations on rental units across the country. Prospective landlords were also hit with an additional 3% stamp duty tax in 2016 on second homes (including buy-to-let).

"This pattern is symptomatic of the shift in the mood music in the buy-to-let market in the wake of tax changes, which are still in the process of being implemented," according to the RICS survey.

Every region of the country reported a decline in new rentals, with the exception of the Northwest. Realtors were only slightly negative on new rental properties in London, according to the survey.

London-based agent Allan Fuller of Allan Fuller Estate Agents specifically called out the tax changes as a deterrent to investors. "Tenants are mainly staying longer and there is very little new rental property coming to our local market due to fewer investors," Mr. Fuller said in the survey.

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Meanwhile, some new rental stock is coming from London homeowners, who are hesitant to sell in the city’s depressed housing market and have decided to wait out the downturn, reported agents at Robert Holmes & Co.

"Anyone failing to sell is now keen to rent for up to a year before testing the sales market again," the Wimbledon-based agents said in the survey.