Taxing Landlords more – homes for first-time buyers, or higher rents for tenants?

The longstanding argument that buy-to-let landlords steal homes from first-time buyers runs on.

Is it really the case that by taxing landlords more the government has succeeded in releasing more properties to buy? The NRLA’s view is that it’s unclear how higher taxes, that lead to higher rents, provide opportunities for tenants to buy?

The argument that hitting landlords with higher taxes can help more first-time buyers onto the ladder has resurfaced following a recent report from the Joseph Rowntree Foundation (JRF). But landlord bodies (NFRL) are disputing the claim, saying the reality is more complicated – and tenants may be the ones paying the price.

An historical perspective

The PRS grew rapidly during the early 2000s through to the economic crisis of 2008 and picked up again after the credit crash as buy-to-let was relatively profitable; regulation was less burdensome and borrowing at low interest rates was easier.

After 2015, with changes to mortgage interest relief etc., the cost burdens on buy-to-let landlords began to grow, along with increasingly complicated regulation of the sector. In retrospect, the introduction of the Section 24 rule, with its removal of mortgage interest relief, was a major turning point. 

According to CBRE figures, from around 2019 onwards there is clear evidence of reduction in supply, where many rental properties are sold by landlords, and are not being re-let. It means they permanently exited the private rented sector (PRS). The rate of exit now seems to be accelerating due to rising interest rates, inflation, increased regulatory threats (the Renters’ Rights Bill), and even more threatened tax burdens. 

But there's a lot of regional variation. In London the effects of exits have been strongest, particularly for rental supply in certain London boroughs.

A taxing growth strategy

Going back 10 or 15 years when the buy-to-let book reached its peak, the then chancellor George Osborne bowed to public opinion amid warnings from the Bank of England that BTL mortgage lending was reaching dangerous levels, He decided that BTL needed to be tamed by imposing serious restrictions.

Section 24 of the Finance Act 2015, which became known as the "Landlord's Tax", was phased in between 2017 and 2020 restricting tax relief on mortgage interest and other finance costs for individual residential landlords to the basic rate of income tax (20%). 

BTL landlords who own properties in their own names can no longer deduct finance costs from their rental income as other businesses can, but instead they receive a tax credit for these costs, effectively increasing their taxable gross rental income and reducing their overall tax relief compared to the previous system.

Over the past decade or so, the government, it seems, has pursued a deliberate strategy of “levelling the playing field” between landlords and those aspiring to own their own home. 

The original 3% stamp duty surcharge on additional properties (now 5% following last October’s budget), the phased removal of mortgage interest tax relief, the removal of the annual 10% depreciation allowance, and tougher regulation of the sector, have all conspired to discourage new buy-to-let investment. And many landlords have become so disillusioned with the regime, they have sold up, shrinking the supply of private rented homes.

As has been seen as an acceptable alternative, consecutive governments have encouraged investment in the build-to-rent BTR sector. Tax advantaged instructional investors, often operating under the REIT tax regime, have entered the market.

Do first time buyers’ really benefit? 

In their new report, “Rebalancing the housing market through tax reform” The JRF argues this has had a positive effect: more properties are available for first-time buyers. Their report suggests that, as landlords exit, younger households are finally able to buy, which they argue supports their argument and the policy objective that higher tax on landlords leads to a boosting of homeownership. 

True, sales to first-time buyers have risen recently, boosted by government schemes to assist first time buyers, but landlord groups counter this with their argument that the full evidence tells only half the story.

The affordability trap 

The flipside of landlords exiting is fewer rental homes. Regardless of people wanting to buy their homes, demand for renting is still very strong. This excess demand has pushed rents sharply higher in many regions. 

For tenants, who are already under pressure from rising inflation and weak wage growth, it creates an affordability trap. Not only are rents consuming more of tenants’ incomes, but higher monthly outgoings make it harder to save for a deposit – the very thing first-time buyers most need.

House prices may be slightly more accessible at the margin when landlords sell-up, but if rents are climbing faster than incomes, tenants are stuck with renting. Instead of saving, they are paying more each month to compete for scarcer rental accommodation. The question of affordability runs deep.

It is a fact that not every renter wants to buy. There’s a growing number of people who are choosing or expecting to rent for life. Increased housing costs is a factor, but a desire for flexibility and changing financial circumstances is resulting in a significant proportion of private renters anticipating long-term or even lifelong tenancies. 

Renting has a great advantage for some, especially students and young professionals who don’t know where their career and employment choices will take them in the short-term. Renting provides the flexibility they need – the ability to move for work, avoid the responsibilities and costs of ownership, or simply to live in areas where buying would be impossible for them. 

A government policy assumption that all tenants are aspiring home owners risks ignoring the real demand for a well-functioning, affordable rental sector.

Some statistics

In 2024 there were approximately 341,000 first-time buyers, up 19% on 2023 and first-time buyers made up 54% of all home purchases with a mortgage in 2024, the highest share on record according to Halifax and UK Finance. 

It suggests improved mortgage affordability or shifts in the market favour of first-time buyers. This tends to support the idea that more people are entering home ownership. But one must consider that this follows a Covid period and is coming off a low base, so this needs comparison over a longer period to discern a proper trend.

The average house price was £311,034 in 2024 (Halifax) and an average deposit £61,090.  It shows how high the bar is for first-time buyers when deposits are very large sums, even if mortgage availability improves. 

It may well reduce any net benefit from landlords exiting if the deposit hurdle remains so high. Mostly, only those lucky ones with the benefit of a loan / gift from the bank of mum and dad can get on the ladder.

UK wide surveys by Uswitch suggest that while there has been a rebound in first-time buyer numbers, the recovery is partial. The overall trend had been down, so any growth forecasts need cautious interpretation.

There’s a big disparity regionally, which means any policy effects on landlord exits because of tax changes don’t play out uniformly. Landlords selling up in London or the North East may free up more houses, but for tenants the disparity in property prices and high rents in London mean the loss of rental options have more immediate consequences.

Rent or buy?

So where does the balance lie? On one hand, the government and JRF point to an increase in first-time buyer transactions, whereas on the other, critics such as The NRLA argue the policy is pushing up rents and making life harder for millions of tenants. 

In truth it seems likely that taxing landlords more has reshaped the whole housing market making it more difficult for landlords and tenants alike; without solving its fundamental property market problem, a chronic lack of supply.

In Quarter 1 of 2025, 15.6% of all new property instructions were homes that had been private rentals. Of the roughly 70,542 former rental homes listed in Quarter 1, 2025, only around 3,600 (3%) were re-let, meaning around 18,000 properties are estimated to have exited the rental sector altogether during that time (LandlordZONE)

The longer-term numbers give a better picture

The scale of rental homes lost, which is approximately 400,000 since 2016, is no trivial amount. It shows this is a longer-term trend starting with the imposition of “The Landlord Tax”. 

It shows the recent jump in exists, bolstered by the impending Renters’ Rights Bill, the new energy performance requirements, and not to mention the rumours of National Insurance (NI) contributions and increased capital gains tax, in the forthcoming budget. It gives credence to general concerns about a dwindling rental supply, steadily increasing rents and more insecurity for tenants.

JRF’s narrative is complicated by several factors. While more landlord sales may well free-up more homes for purchase, there are long lag times. The condition of houses sold, their location mismatch, and indeed how many don’t go to new buyers but to professional buy-to-let investors who are building large portfolios. By no means does every exit sale help first-time buyers.

A changing composition

Most of the shrinkage in buy-to-let is among the small-scale so called “amateur” part-time landlords who are finding it hard to keep up with the changing requirements and struggling with costs.

There’s been a major shift to short-term lets (Airbnb) diverting thousands of landlords away from the traditional buy-to-let market, further distorting the argument that higher taxation leads to more properties on the sales market. 

In the buy-to-let market the ownership composition is now shifting to larger portfolio operators most of whom are incorporating, and to the large institutional investors, the corporate/private equity entities now entering the Build-to-Rent (BTR) market. 

In the early days of buy-to-let a growing market somewhat cushioned a housing shortage as more dwellings were refurbished and brought online. More recent policy changes (tax, regulation etc.) have had their impact, reducing landlords’ profits, in some cases to minus numbers, and making holding rental housing more expensive and therefore more risky. 

Thus, as the argument goes, the more recent exits may have skewed the overall picture. And this is further complicated by the fact that in high-cost areas, exits are more likely to lead to rent rises, whereas in cheaper areas freeing up stock may indeed help first-time buyers.

JRF is right in one respect, that some landlord sales do create supply that can be bought by first-time buyers. But the landlord bodies also have a valid argument: that exits shrink rental choice and, by pushing rents up, can make it harder for many renters to save for a deposit. 

All the evidence points to a gradual shifting of supply between tenures, from ownership to renting, but a more recent shrinkage and a market reshaped by tax, regulations and mortgage policy, demonstrates the results of an environment that buy-to-let owners find difficult to operate in. 

Until more homes are built – for both ownership and to rent – the debate will continue. Taxing landlords more may have shifted the balance, but it hasn’t tackled the root cause of the problem.

Conclusions

There’s been a long-running debate about whether housing policy wins by squeezing buy-to-let landlords through higher taxation? Has the policy genuinely helped first-time buyers onto the property ladder or has it simply made life more difficult for landlords as well as tenants.

The Joseph Rowntree Foundation’s (JRF) recent research study has suggested that measures such as the removal of mortgage interest relief, the 3% (now 5%) stamp duty surcharge on additional homes, and tighter lending rules and other regulations have encouraged landlords to sell up. This policy has released some housing stock back onto the market, but if JFR’s argument goes that fewer landlords mean more opportunities for first-time buyers then this conclusion is disputed. We must see the bigger picture.