You would be forgiven for considering the last government’s failure to pass the renters’ reform bill before the dissolution of parliament as good news for landlords – given that one of the bill’s key goals was increasing protections for tenants. But the respite is likely to be brief at best.

Experts agree that legislative uncertainty is weighing heavily on the buy-to-let sector, and while Labour’s landslide victory gives newly appointed housing secretary and deputy prime minister Angela Rayner the remit to create the party’s own version of the bill, what that will look like remains unclear. There are also huge questions over what Labour will decide to do with capital gains tax (CGT) and rental homes’ energy efficiency standards. 

Meanwhile, the market itself remains a mixed bag for buy-to-let landlords. Mortgage rates are slowly coming down, but base rates are proving stickier than some had hoped; meanwhile rental growth is strong but softening, and house prices are flat. Landlords once again have a lot to consider before making new investments, and may even be thinking the time has come to sell up and invest in the stock market instead.

Uncertain regulatory landscape

The Labour manifesto didn’t go into great detail on how the new government plans to handle the rental market, but it contained two important hints: a promise to “immediately abolish” section 21 ‘no fault’ evictions and to ensure that homes in the private rented sector “meet minimum energy efficiency standards by 2030”.

The renters’ reform bill also aimed to abolish no-fault evictions, but it was subsequently watered down so that the relevant section of the bill would not come into effect until the courts were also reformed, to give landlords who do have the grounds for evicting a tenant the ability to do so more easily and with less delays. The National Residential Landlords Association (NRLA), together with other industry groups, has asked the new government to resurrect the bill in this form.

But Labour’s promise on no-fault evictions means that the new government is more likely to put forward its own version. Chris Norris, the NRLA’s director of policy, expects that they will do so quite quickly, although the legislative process could still take a few months. “I don’t think realistically that a Labour government is going to pause anything while they fix the courts. But I think it is reasonable for them to commit to working on the courts while they’re working on section 21 [evictions],” he said. “You can’t just deal with no-fault evictions in isolation… you’ve still got to recognise that landlords need to have confidence in the process.”

Ultimately, the sector has been expecting a ban on no-fault evictions for a long time, and other policies might prove more detrimental. Aneisha Beveridge, head of research at Hamptons, says that while some landlords are concerned, “most have got their heads around the changes suggested in the bill”. 

“The possibility of further regulation by a Labour government could weigh on already low levels of investment in the sector and might mean more landlords leave the market. Any form of rent control or stricter energy performance criteria, in particular, is likely to cause alarm,” she adds.

The Conservatives originally proposed that all newly rented properties would be required to have an Energy Performance Certificate (EPC) rating of C or above by 2025. This was later scrapped by Rishi Sunak’s government. The details of Labour’s manifesto pledge on energy standards remain unclear, but Norris argues that meeting the original target, even by 2030, is too ambitious a goal. 

“There isn’t enough time to get something like 2mn properties up to a C standard. Not because there isn’t the will, but because finance at the moment is difficult because interest rates are high… But also there isn’t the trade supply chain in place,” he says. “Realistically, if we all join the queue today, I don’t think all that work is going to be done by 2030. I hope the fact that [Labour] has been so vague is because they realise it’s a bit more complicated than it seems at first glance, and maybe we’ll get a more staggered timetable.”

Of other potential measures, rent controls appear a less immediate possibility, although chancellor Rachel Reeves said before the election that while she is not convinced about rent caps as a blanket approach, they could be an option in certain local areas.

Capital gains tax looms

Another key question is whether Labour will decide to make changes to CGT. While this was not in the manifesto, it does look like a possibility, given that the new government will most likely need to raise more money to deliver on its promise to fix the country’s public services. 

Predicting the impact of an increase in CGT rates can be difficult, in particular for the buy-to-let sector. If the hike is announced well in advance, people can rush to dispose of their assets ahead of the change. Later on, a higher rate of CGT can discourage people from selling. Overall, a CGT increase does not always raise as much money as hoped by lawmakers.

Tom Bill, head of UK residential research at Knight Frank, says a policy change would be “just another reason for landlords who are on the fence to leave the sector”. But the timing would also be crucial: “If the government signals in the Autumn Statement that it’s going to do it from the new tax year in April 2025, you’re going to have a period of four or five months where you’ll see lots of landlords deciding that they’re going to sell,” he explains. Estate agents have already reported an uptick in buy-to-let landlords seeking to accelerate the sale of properties to avoid this potential tax increase, according to the Financial Times.

Norris says that a CGT hike would also make new buy-to-let investments even less attractive. Uncertainty around rental reform has the potential to impact profitability on the rental income side, and higher mortgage rates have reduced the profit margin. This has made investors more reliant on capital gains. He says a CGT increase, therefore, could be a significant disincentive for new landlords to enter the market or for existing ones to expand their portfolios.

It would also further encourage landlords to incorporate their properties into a limited company, which could be a positive for the professionalisation of the sector, according to Norris. As we have discussed before, incorporating does not make sense in all cases, and if you own a property in your own name and you move it into a company, you would usually still have to pay CGT on the transaction. 

But an increasing number of buy-to-lets have already been incorporated over the past few years for tax efficiency purposes – limited companies pay corporation tax on profits, which is normally lower than income tax if you are a higher-rate taxpayer. Mortgage interest payments are also tax-deductible for companies. Labour has promised not to increase corporation tax, and Beveridge notes that it is much harder for the government to target landlords, if they operate via a limited company, without also increasing taxes for all other businesses. Landlords who want to stick with their rental properties or buy new ones might want to consider incorporation, especially if they own a number of different properties.

Rents, mortgages and house prices

Regardless of what the Labour government decides to do, the market remains challenging for mortgaged landlords. The chart below shows that while buy-to-let mortgage rates have come down from last year’s peak, the progress has stalled since the beginning of this year, as high interest rates proved more stubborn than some had hoped. 

On the plus side (from landlords’ if not renters’ perspective), rental growth has remained strong, although it has cooled from the heights seen in 2023. Beveridge says annual rental growth on new lets appears to be stabilising around the 6 per cent mark, which is significantly higher than the 2.5 per cent average annual growth rate recorded pre-Covid.

But it does take a very high level of rental growth to make up for the increase in interest rates. Beveridge says that while rental growth is normally higher for new lets, this year rent increases on existing tenancies are starting to outpace them, highlighting “the stress that some landlords are under”.

The final piece of the puzzle is that while house prices did not plummet last year, thereby defying the gloomiest forecasts, they are for now undergoing a slow and muted recovery – in June prices were up 1.5 per cent year on year, according to the Nationwide House Price Index. Beveridge notes that rental growth has outpaced house price growth over the past two years, resulting in record yields.

Mortgage rates are expected to start decreasing again once the Bank of England makes its first rate cut, which could come as soon as next month. Beveridge hopes that a combination of cheaper mortgages and high yields might stimulate appetite for buy-to-let investments towards the end of the year, after a difficult period for the sector. But lower mortgage rates could plausibly also boost house prices fairly quickly.   

Considering the state of the market and the political landscape, Bill says that the predominant attitude among landlords has been one of wait and see. “At this stage, anyone who’s made a decision to sell up has probably already taken that decision. Most other people will be watching and waiting to see what Labour say over the summer, and then what they do in the Budget,” he argues.