Rebalancing the housing market through tax reform

The expansion of the sector was enabled by a low tax, low regulation and low-interest rate environment and supported by access to credit through buy-to-let mortgages (UK Finance, 2024). These conditions encouraged small-scale, amateur investors to buy and let out properties, largely motivated by using buy-to-let as a savings vehicle and to generate income. English Private Landlord Survey data shows that around 43% of landlords owned just one property and a further 39% owned between 2 and 4. Over 42% said they became a landlord to contribute to their pension and 42% cited a preference to invest in property (together the most cited reasons), followed by over a third who said they became a landlord to supplement income.

This appetite for investment and the growth of the PRS turned many would-be owners into a ready supply of potential tenants, as landlords outcompeted would-be owner-occupiers for access to ownership of properties. House price growth outstripped earnings growth, hurting affordability for owner-occupiers as required deposits also rose further than many household incomes and mortgage lending rules were tightened following the global financial crisis (GFC). Moreover, more demand for housing was pushed to the private rental sector as the supply of social housing stock dwindled.

The growth in the number of households living in the PRS, and with it the increasing numbers living in the tenure for longer, raising children and retiring in homes rented from private landlords, has driven political and policy concerns. Regulation has not kept pace with the growth of the PRS. As a result, a growing number of tenants have ended up exposed to insecure, low-quality and high-cost housing. This has led to a consensus that action is needed to ensure greater security, quality and protection for tenants.

Several piecemeal reforms targeting quality and security in the PRS took place over the 2010s, culminating in the introduction of the Renters Rights Bill (formerly Renters (Reform) Bill) in 2024, which is currently progressing through Parliament. This bill will serve as a more fundamental reform of the tenure system and includes ending no-fault evictions and implementing tougher minimum decency standards.

Tax regime shift since 2016, more pressure on landlords

Alongside these reforms to the PRS itself, there has been growing acknowledgement that the conditions which have enabled the growth of the PRS are also those which have locked many households in it and out of homeownership. In particular, a favourable tax environment combined with an ability to borrow on rents, not incomes (and therefore borrow higher amounts) has allowed landlords to outcompete would-be FTBs. This has in turn inflated house prices further (Grayston et al., 2024).

This led the Government to argue in 2015 that the current tax system ‘supports landlords over and above ordinary homeowners’ (HM Treasury, 2015a), before it announced 2 reforms designed to boost the position of FTBs.

First, the 2015 Summer Budget announced that relief for mortgage interest for individual landlords, which had previously allowed landlords to deduct interest payments from their income tax liability, would be restricted to the basic rate of income tax, to be phased in over 4 years from 2017 (HM Treasury, 2015a). It was replaced with a mortgage interest tax relief at 20%.

This mortgage interest tax credit effectively meant basic rate payers were not impacted by the changes unless they were on the verge of the higher rate thresholds and pulled by the changes into the higher bracket.

Figure 2 illustrates the impact on landlords in different tax brackets using average rents, property values, a constant mortgage interest rate and reasonable assumptions about management and maintenance costs. In this example, higher and additional rate taxpayers could expect to see the share of gross rental income paid in tax increase by around 10 percentage points.

At a reasonable estimate, around a fifth of individual landlords have been affected by these income tax changes. In 2019/20, there were 660,000 higher or additional rate-paying individual landlords who declared income from letting properties, around 30% of individual landlords declaring income to HMRC (Treasury, 2021). Approximately 60% of landlords owned their rental properties with some form of borrowing, 42% with a buy-to-let interest-only mortgage and 14% with a repayment buy-to-let mortgage; 40% owned outright with no borrowing or debt (ELPS, 2024). If we assume that trends in ownership map onto landlord composition across income tax brackets, we could expect to see around 400,000 individual private landlords in higher or additional tax brackets owning their property with a mortgage.

Second, these changes to income tax arrangements were followed up in the 2015 Spending Review and Autumn Statement with an announcement that a 3% Higher Rate of Additional Duty (HRAD) on Stamp Duty Land Tax (SDLT) for additional properties, including properties bought to let out, would be introduced (HM Treasury, 2015b). This became effective on 1 April 2016. We estimate that this change will have increased the average amount of SDLT on a typical landlord purchase from £2,000 before the change to £8,500 after the change, a 325% increase (note here we have used first-time buyer property prices to approximate the price points at which an average landlord is likely to acquire property).

Reforms closed short-let tax advantages, increased stamp duty for additional properties

Recent budgets have intensified the trajectory of tightening tax policy on landlords. The 2024 Budget, the last fiscal event of the previous government, removed the preferential tax treatment on the owners of furnished holiday lets, including the ability to deduct borrowing costs from income tax, and abolished the multiple purchase relief on SDLT. It also reduced the rate of Capital Gains Tax on the disposal of properties (HM Treasury, 2025), a move explicitly framed in budget documents as aiming to ‘boost the availability of housing by encouraging residential disposals’.

More recently, in the 2025 Budget, the Chancellor announced that the HRAD would increase to 5%, a notable uplift in the rate of SDLT that purchasers of additional property will have to pay.

Collectively, these factors have led landlords and their lobbyists to claim that they face a ‘hostile environment’, leading to ‘an exodus of landlords’ that is causing scarcity and which is having significant impacts on tenants, such as driving up rents and causing homelessness. These claims are then often accompanied by calls for ‘pro-supply’ policies – usually a repeal of the post-2016 tax changes (NRLA, 2023).

Recently, these calls have become more vocal, as plans to reform the PRS have progressed and the low-interest rate environment that accompanied the growth of the PRS has ended, with rates spiking following the mini-budget of September 2022 and remaining at higher levels than have been the recent norm.

Real impact of tax changes is understudied

Despite these simple – and often compelling – narratives from landlords and their lobbyists, the actual impact of fiscal reform on purchases into the PRS has been subjected to limited analysis.

This is what we are testing in this report. In doing so, we want to explore 3 questions:

• Have the post-2016 fiscal reforms led to fewer home purchases by landlords?
• If so, has this had a positive impact on residential buyers, particularly FTBs?
• Has this had any impact on tenants who remain in the PRS?

We believe these are important questions to consider, both in understanding what has happened and is likely to happen in the housing market going forward, and in order to guide how the current government might think about how fiscal policy can support FTBs to access homes going forward.

Range of sources corroborate trends, from large-scale surveys to mortgage lending data

Survey data confirms the same turning point. Homeownership hit a low of 62% in 2016/17, with private renting peaking at 21%. Since then, private renting has edged down to 19% and owner-occupation has risen to over 64%, equivalent to 1.1 million more owner-occupier households than if pre-2016 trends had continued.

This shift is especially marked among 20–34-year-olds: between 2000 and 2016, homeownership collapsed from 44% to 24%, and instead, almost half of this group were renting. Since 2016, the trends have begun to unwind, with renting falling by 7 percentage points and ownership climbing by 4. Among middle- and higher-income young adults, the change is sharper still, with ownership rising from 40% in 2016 to 47% in 2023, while private renting dropped from 42% to 37%.

The post-2016 rise in ownership has been driven by FTBs. English Housing Survey data show that the number of ‘recent’ FTBs (those purchasing within the last 3 years) fell from nearly 1 million in the mid-1990s to around 650,000 by 2015/16. Since then, numbers have surged – reaching 975,000 by 2023/24, back to 1990s levels. Net moves into ownership also nearly doubled between 2013–15 and 2020–23.

Growth in mortgaged buy-to-let purchases flatlined, PRS growth slowed, lending to FTBs grew

A similar pattern can be found in data on new mortgage lending to landlords. This is significant as the buy-to-let mortgage has been a key component in the growth of the PRS. Post-GFC and pre-2016, gross mortgage advances for buy-to-let and FTBs both grew rapidly in real terms. Again, however, 2016 is an inflection point in the data where buy-to-let lending flatlined and held relatively constant until the interest rate spikes.

Annual real growth in new buy-to-let lending fell from an average growth of 25% (2009–16) to just 1% (2016–22), with lending flatlining at around £11 billion a quarter in today’s prices. The buy-to-let share of all new advances also dropped sharply – from a peak of 25% in 2015/16 to 12% by 2024. The brief spike in 2016 reflects landlords bringing forward purchases ahead of the SDLT surcharge.

In contrast, FTB lending continued to expand, rising from an average of £11 billion a quarter (2008–15) to £18 billion (2016–22). FTBs’ share of all new lending grew from 23% in 2007 to 41% by 2024.

Estate agent data reinforces this shift. Hamptons figures show that since 2016, more homes have been sold out of the PRS than bought into it, though official sources suggest this has slowed growth rather than shrunk the sector. This likely reflects stock flows not being fully captured in the Hamptons’ dataset (for example, institutional purchase, new build-to-rent or tenure conversions). The official sources of data we use do not support the idea that there has been any meaningful shrinking of the sector to 2024.

On the other side of the equation, higher interest rates in recent years have also made savings more attractive, with savings rates on 2-year fixed cash ISAs, for example, climbing from lows of below 1% through 2020/21 to over 5% in late 2023, though dipping again since then. Despite this, investing in property over savings continues to be advocated by financial advisors, banking on the continued lucrativeness of the steady stream of rental income and appreciation in value of the property, even despite the tax changes and regulatory change.

Beyond savings levels, our analysis found no relationship between the attractiveness of alternative investment options, such as investing in a FTSE 100 tracker (using average annual FTSE returns, Curvo, 2025), and the rate of growth of the PRS.

Recent interest-rate hikes reshaped landlord profitability

The sharp rise in interest rates since 2022 has become the dominant pressure on landlord finances. Buy-to-let mortgage rates jumped from below 2% pre-2022 to over 6% in late 2022, before stabilising at 4–5% through 2023–24. This surge doubled average interest costs for landlords and saw gross advances for new buy-to-let mortgages halve from around £40 billion to £20 billion annually.

By the end of 2024, mortgaged buy-to-let landlords in England were spending on average 50% of rents on mortgage interest, up from between a quarter to a third through the late 2010s and early 2020s prior to the interest rate hikes (JRF analysis of UK Finance, 2025). UK Finance data shows arrears cases doubled (from 6,000–7,000 pre-2022 to 12,000–13,000 by 2024), likely prompting some landlords to exit or rationalise portfolios. Prudential lending rules have limited defaults, but higher borrowing costs have still eroded profitability.

Changes to income tax for landlords, where they are no longer able to deduct mortgage interest from tax liabilities as finance costs, have, to an extent, compounded the impact for landlords. However, in cases where landlords make a loss, they are able to deduct losses against tax liability on profits made in future years, which mitigates these impacts.

Importantly, this analysis is clear that it is interest rate changes, not income tax changes, that are the main driver of pressure on landlord financial viability currently. The landlord lobby has nonetheless used this moment to argue for tax breaks for landlords, to mitigate the impact of the removal of mortgage interest deductibility from tax liabilities. This would be a mistake; it would reduce tax revenues for the treasury to bolster the finances of private landlords, and risk undermining the progress made in boosting rates of owner-occupation.

Landlords switch to incorporation, and investment in short-lets, to avoid tax rises

A further behavioural response to the changing tax regime has been the increased use of limited company structures to acquire properties. This increase in the use of incorporation weakens the effectiveness of the tax changes in dampening demand for buy-to-let home purchases. The effect may also be weakened by the shifting of investment towards short lets, although recent policy change has levelled the playing field on the preferential treatment of incomes from short lets.

Our analysis finds that there has been a surge in new incorporations of private lettings companies post-2016. The numbers have more than tripled from 117,000 in 2015 to 400,000 at the start of 2025 – more than twice as many than if the pre-2016 growth trend had been followed. Around 40% of these hold mortgages, together accounting for more than half a million loans. This shift likely reflects the tax advantage of incorporation, as companies can still deduct mortgage interest as an expense.

Shifting the use of dwellings from private rentals to short lets, which until 2025 retained preferential tax treatment as finance (mortgage interest) costs had been fully deductible from tax liabilities, has also been a strategy of some investors. Although they incur higher management and maintenance costs, short lets can prove more lucrative than private rentals for those with property in desirable locations. Although the number is still very small compared with the PRS, HMRC data shows the number of furnished holiday lets rising from 100,000 in 2018/19 to 130,000 in 2022/23, with declared income up 70% to £2.3 billion. Other sources suggest the scale of the short-lets industry is more substantial, with one source estimating that there were over half a million listings on Airbnb alone across the United Kingdom in 2024 (Demand Sage, 2025).

Ownership of private rentals has also become more concentrated in the hands of a smaller group of landlords. The share of homes owned by ‘one property’ landlords halved between 2010 and 2024 (from 40% to 20%) while the share owned by those with 2 to 4 properties increased from 20% to 30%, and by landlords owning 5 or more properties increased from 40% to 50%.

This may point to ownership of private rentals shifting towards those who are better capitalised and more financially resilient, and an increasing professionalisation of the sector, with a move away from more amateur and small-scale landlordship. This may be driven by a combination of tax changes and increased regulation. If this reflects an increasing professionalisation of the PRS, it should be welcomed, as a more professional sector is more likely to provide better-quality homes and better-managed housing services to its tenants, more akin to the better-regulated private rental sector we see across Europe.

Finally, it is worth noting that these trends in acquisitions are not explained by changes in overseas acquisitions following Brexit. Land Registry data shows steady growth in overseas-owned properties from around 0.5% of all properties in 2010 to over 1% by 2021, with growth across both EU and non-EU owners. Brexit itself therefore seems unlikely to have played a significant role in shaping the trajectory of buy-to-let purchases. More recently, however, additional tax measures (including a 2% stamp duty surcharge on overseas buyers in 2021 (rising to 5% from 2025), alongside the 3% surcharge on second homes and the abolition of non-domicile tax status) have played a role in dampening demand. Hamptons links these changes to a fall in overseas buyers looking to purchase property in Britain, which they report has fallen to a record low.

Support for FTBs helps shift demand from landlords to owner-occupiers

The analysis above is clear that there is a relationship between the stagnation in the growth of the PRS and the recovery in the growth of owner-occupation. Every 1 percentage point fall in the rate of growth of the PRS is associated with a £6.2 billion increase in the real terms value of new mortgages for FTBs annually, equivalent to a tenth of the total gross new mortgage advances to FTBs across 2024. This holds, with the rate of growth of the PRS explaining a substantial share of the variation in the level of FTB advances, even when we control for other variables such as support for FTBs to get onto the housing ladder through gifting from parents, cuts to stamp duty for FTBs and average interest rates for FTBs.

Changes to the tax regime that put downward pressure on landlords coincided with growing levels of support from the Government to boost homeownership (through various schemes and stamp duty cuts) and a growing prevalence of gifting deposits from parents to young adults to acquire their first properties. It is therefore likely that pressure on landlords and support for FTBs worked in tandem to support growing rates of first-time buying in the late 2010s onwards.

The value of cash gifting from parents to facilitate the first step onto the housing ladder has increased in recent years. Support worth £4–5 billion total (in today’s prices) a year in the late 2000s grew to £6.5–7.5 billion during the 2010s and climbed further to £7–12.5 billion in the 2020s, making up between 30% and 50% of total deposits put down by FTBs in aggregate. Intergenerational wealth transfers from older cohorts to millennials and Generation Z are proving an increasingly important route into homeownership, but only for those with access to family wealth.

Since the post-crash slump in homeownership, the Government has intervened heavily to support FTBs. More than £25 billion has been issued in Help to Buy equity loans (supporting 330,000 FTBs), alongside £2 billion in Help to Buy or Lifetime ISA (LISA) bonuses (helping over a million people, values in today’s prices). These schemes reduced deposit requirements, widened access to mortgages and better mortgage interest rates, and facilitated access to ownership, though Help to Buy equity loans and LISA have now closed.

Alongside this, around 20,000 affordable homes a year have been delivered across England, mainly through Shared Ownership, with a growing share via the First Home Scheme. Beyond these schemes, since 2021 around 40,000 FTBs have been supported to access homeownership through the mortgage guarantee scheme. Other schemes, such as rent-to-buy, alongside an emerging variety of private market innovations, have also helped improve access to ownership.

Stamp duty has been made more favourable to FTBs, with thresholds raised in 2017 and again in 2022 (although partly reversed in 2025, with property price thresholds for relief dropping from £625,000 to £500,000). Taken together, these policies have improved the position of FTBs and contributed to the recovery in ownership rates.

Overall, we conclude that landlord tax changes have contributed to the shift in demand away from buy-to-let investors and towards FTBs. At the same time, the recovery in owner-occupation is also shaped by support for ownership through intergenerational wealth transfers and targeted government schemes.

Corroborating this, analysis of average rents, average asking rents and new let rents demonstrates there was no real terms rental growth in the 5 years following the introduction of the tax changes. In fact, consistent with the survey data above, the time series suggests that average rents and asking rents fell in real terms following the introduction of the changes.

However, rents have risen sharply since 2021, but largely for reasons beyond landlord tax reforms. The Covid-19 pandemic, high levels of inflation and earnings growth (Resolution Foundation, 2024), interest rate hikes, particularly high levels of net migration into the UK post-pandemic (Bloomberg, 2024) and the suppression and realising of pent-up housing demand during Covid-19 have all had substantial impacts on the PRS in recent years, and have played a role in underpinning real rental growth in the private rental market.

Demand data from Zoopla and Rightmove also shows unusually high competition for homes since the pandemic, with enquiries per rental listing quadrupling at their peak. Some have used these trends, real terms increases in rents and excessive demand for private rentals, to argue for the Government to introduce tax cuts for landlords and water down forthcoming regulations of the sector to boost the supply of private rental homes. As set out below, we are of the view that this would be a mistake. The key issue is an inadequate supply of homes overall for the levels of demand for housing, rather than of private rentals specifically.

Lower rates of private rented home purchases not harming PRS spatial efficiency

Some have argued that a shrinking or stagnant supply of private rentals may result in some groups, and particularly those with lower resources, being unable to meet their housing needs. The argument here is that housing may increasingly be occupied less ‘spatially efficiently’ when the PRS is smaller, because the PRS incentivises maximising use of space, whereas owner-occupiers are more likely to have spare bedrooms. Fewer private rental homes means reduced opportunities for sharing.

In addition, improving the market power of FTBs, relative to landlords, may speed up the rate of new household formation among those who currently live with their parents. If an increased rate of new household formation into owner-occupation is achieved, then this may result in the suppression of household formation elsewhere, including into the PRS if the sector is stagnant or shrinking. This means that some households that otherwise would have formed into the PRS, likely those with lower levels of resources, are unable to meet their housing needs.

If these risks materialised, we would expect to see more house sharing, increased rates of overcrowding or a growing lower-income group spending longer living with parents. On the first of these, we have not found evidence of an increasing incidence of sharing among private renters in the analysis of large-scale survey data. The English Housing Survey does show a long-running trend of rising rates of over-occupation in the social and PRSs, although much of the increase in overcrowding happened prior to 2016, with some continued increase in rates of overcrowding for social renters post-2016. The rate of overcrowding in the PRS is slightly elevated compared to pre-2016 levels.

On the third, our analysis of the Family Resources Survey (Figure 18) does show an increasing suppression of household formation with an increased incidence of young adults living as concealed households(1). Among adults aged 20–34, the share living mainly with parents has climbed substantially from around 24% in 2001/02 to 33% in 2023/24 – over 1 million more, reaching 3.65 million. Around 90% of these young-adults are in the bottom 40% of family incomes, and a huge 57% of low-income 20-34 year olds were in this position in 2023/24 compared to 45% in 2001/02. While the graph shows a substantial fall in the rate of private renting among this group since 2015/16, looking at the longer run trend we can see that at the start of the century a larger share of this cohort were either renting social or in owner occupation.

While the stagnant size of the PRS may have contributed to some of these trends, both overcrowding and concealed households grew most sharply when the sector was still expanding. In the long run, these pressures are better explained by an inadequate supply of housing overall and increasingly inefficient use of existing stock, rather than by the size of the PRS specifically. The solution therefore must be a substantial expansion in the supply of housing generally in combination with wider policy to make housing more affordable, including ramped-up delivery of social and affordable housing, rather than a focus on expanding the size of the private rented sector.

Importantly, the profile of private renting tenants has changed substantially over the years, with increasing numbers of families with children and other couples without children, while the share who are younger adults and sharers has been shrinking. Since couples and families are most likely to transition into ownership, each move into homeownership reduces the demand for private rentals. This helps limit concerns about the efficiency of how homes are used as the PRS stops expanding.

Disinvestment may increase homelessness – policy should mitigate

A stagnant PRS could raise the risk of homelessness, either by making it more difficult for households to find new homes or by exposing them to a greater risk of eviction as landlords divest.

Historical, granular data on homelessness is limited. Data which records the reason for homelessness only goes back to 2018–19, preventing an analysis of how this may have changed because of changes to the tax regime. Data on overall rates of statutory homelessness ‘acceptances’ is not comparable before and after 2017–18 due to the introduction of the Homelessness Reduction Act, meaning it is not possible to compare with the previous year to isolate the impacts of tax changes.

Looking at more recent data does reveal a spike in homelessness assessments due to the serving of a valid Section 21 Notice. In the most recent data, 2022–23, the number of households assessed as homeless for this reason grew by around 22% on the previous year.

Examining data on prevention and relief orders shows that this is largely driven by an increase in landlords selling properties (and evicting tenants as part of this process). Homelessness due to the landlord selling or re-letting a property has represented over half of all cases of households owed homelessness prevention duty due to the end of Assured Shorthold Tenancy since the data began in 2018–19, climbing to 65% in the latest year (2023/24).

This does suggest that landlords have responded to higher interest rates by selling up at higher numbers and that this is feeding through to increased homelessness.

However, landlord churn has always been a major cause of private renters having their tenancies ended. The make-up of the sector as a collection of small-scale investors creates a churn of buying and selling, which causes a structural insecurity for tenants. The current limited protection for renters, particularly short notice periods, exposes renters to a risk of homelessness. While we should be alive to the impact that changes to rates of sales have on tenants, these risks can also be mitigated by policy and the Renters Rights Bill currently progressing through parliament will increase protections against homelessness for this reason – including offering tenants 12 months of security before no-fault grounds (such as selling or moving family into the home) can be used and extending notice periods, so evicted tenants have more time to find a new home.