The Intermediary – September 2025 - Flipbook - Page 20
BUY-TO-LET
In focus
NI on rental income
risks worsening the
supply crisis
F
rom the removal of
mortgage interest relief
and the 3% Stamp
Duty surcharge, to the
Renters’ Rights Bill
and now a potential
National Insurance (NI) levy on rental
income, the buy-to-let (BTL) sector
has spent the past decade navigating
a near constant stream of fiscal and
regulatory changes.
The impact has already been
significant, with landlord numbers
falling, rental supply shrinking, and
rents climbing as a result. Adding
another layer of taxation risks
compounding these problems further.
At Octane Capital, our own research
has shown that the landlord exodus
has, so far, been overstated, with just
7% of landlords stating they had sold
up in the last year.
However, with a new wave of
legislative penalties and restrictions
on the horizon, it remains a very real
risk, and 21% are considering reducing
their portfolio size this year.
Taxing times
This risk is echoed by the National
Residential Landlords Association
(NRLA), whose survey of former
landlords found that around half cited
recent tax changes as the main reason
for exiting the sector. It underlines
just how detrimental a further tax hit
could be, should National Insurance be
applied to rental incomes, potentially
accelerating the pace of landlord exits
and compounding the shortage of
rental supply.
Hamptons’ research shows that
returns for landlords have already
been squeezed, with tax changes
eroding profitability and leaving many
questioning whether to remain in the
market. Those with just one or two
properties are particularly exposed,
18
The Intermediary | September 2025
JONATHAN SAMUELS
is CEO of Octane Capital
A shrinking and less
diverse landlord base will
mean reduced choice,
higher rents, and greater
housing instability”
raising the risk of a shi towards a
rental market dominated by large
institutional operators.
In fact, our previous research found
that smaller ‘amateur’ landlords,
who typically hold just one or two
properties, are the most likely to sell
up. If these landlords exit en masse,
the private rented sector (PRS) could
shrink substantially, with our analysis
suggesting the value of lost stock could
exceed £220bn.
It is also important to remember
that landlords already contribute
significantly to Treasury revenues.
HMRC data shows that rental income
is far from untaxed, with landlords
paying Income Tax, Capital Gains Tax
and Stamp Duty Land Tax, while also
shouldering higher operating costs as
interest rates and service charges rise.
Meanwhile, tenants are already
shouldering greater financial
pressure. The Office for National
Statistics (ONS) reports that the
proportion of household income spent
on rent has risen to 36.3% in England,
climbing to 41.6% in London.
Zoopla’s latest rental market report
shows that rents have risen 21% over
the past three years, far outpacing the
4% increase in house prices. Despite
some moderation in annual growth,
tenant demand remains elevated while
the supply of homes to rent continues
to lag behind, leaving imbalance as
the defining feature of today’s private
rental sector.
Applying National Insurance to
rental income would almost certainly
exacerbate this problem, discouraging
further investment and pushing more
landlords towards the exit.
Long-term risks
For lenders, brokers and
intermediaries, the picture is one of
polarisation. Smaller landlords are
more likely to scale back, reducing
demand for buy-to-let finance in
that segment, while larger, more
resilient investors may take advantage
of opportunities to consolidate.
Recognising this divergence will be
critical for the mortgage industry in
adapting its strategy.
The risk for the Government is
that by pursuing short-term revenue
through additional National Insurance
contributions, it undermines the longterm health of the rental market.
The private rented sector remains
essential to housing millions across
the UK, from young professionals to
families and those unable to access
social housing. A shrinking and
less diverse landlord base will mean
reduced choice, higher rents, and
greater housing instability.
Rather than penalising landlords
further, the Government should focus
on policies that encourage investment,
simplify compliance, and support a
rental sector that remains diverse,
flexible and able to meet the needs of
tenants. Anything else risks tipping
an already imbalanced market further
out of whack. ●
