Rents rise as buy-to-let investors pass on costs

The first widespread evidence of landlords raising rents in response to a range of tax increases has led to commentators insisting that buy-to-let remains a viable investment for many.

According to research carried out by Your Move, the letting agents, the average monthly rent in England and Wales has risen by £75 since January, which could signal the first response from landlords to the tax squeeze.

Government data shows that average rents remained at around £650 a month for much of the past two years. But the Your Move index suggests they have begun steadily rising in the past 12 months, with a spike since the tax relief changes began to bite making the average rent £873, up from £798 in January.

From April 2017, buy-to-let investors can no longer offset all their mortgage interest against profits before calculating a tax liability. Over the coming years the amount of interest that can be offset declines until 2020, when it cannot be offset at all. Instead, a 20pc tax credit will be applied. Worst affected will be higher-rate taxpayers who have large mortgages on their buy-to-lets.

The introduction last year of a 3pc stamp duty surcharge on buy-to-let property purchases was a further blow.

But Richard Waind, a director at Your Move, said these factors were not deterring investors. “From a landlord’s point of view it’s actually quite a good time to invest. Mortgage rates are the lowest they have ever been, purchase prices have dipped slightly and tenancies are lasting longer. If you’re a good landlord who looks after their tenants then they will stay,” he said.

The new tax relief rules mean landlords are only able to offset 75pc of mortgage interest against their taxable income in this financial year. Mr Waind said that as this increased in future years it was likely rents would rise further.

“We are now seeing a rising number of tenants year-on-year and, coupled with the lack of properties on the market, that’s only going to do one thing to rents,” he said.