Sunak vs Truss: what could a new prime minister mean for buy-to-let?

Following Boris Johnson’s resignation in July, a new Conservative Party leader and prime minister will be chosen by 5 September.

With just two candidates remaining – Rishi Sunak and Liz Truss – we take a closer look at their policies and what they could mean for landlords.

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Who are the candidates to be the next prime minister?

The race to be the next leader of the Conservative Party started with eight candidates and has gradually been whittled down to two.

Rishi Sunak and Liz Truss will now debate each other at events across the country, while around 160,000 Conservative Party members can submit a postal vote for their favourite.

Below is an overview of each candidate's suggested policies and how they could affect the rental market.

Rishi Sunak, MP for Richmond (Yorkshire)

Best-known for his time as chancellor between February 2020 and July 2022, Rishi Sunak launched his ‘#Ready4Rishi’ campaign within 48 hours of Boris Johnson’s resignation.

But what kind of approach could he take as prime minister, and where does he stand on key issues such as tax?

• Sunak has ruled out tax cuts until public finances improve and inflation is under control
• however, he has previously pledged a 1p income tax cut to be introduced in 2024
• the former Chancellor has consistently voted to reduce central government funding for local councils
• it’s likely that he would stick with the plan to increase corporation tax from 19 per cent to 25 per cent in 2023

What could this mean for landlords?

Rishi Sunak’s approach, which he describes as “common sense Thatcherism”, could dent the tax benefits of landlords who own their portfolio through a limited company.

On the other hand, less funding for local councils could limit their ability to intervene in the rental market. This could lead to a reduction in new landlord licensing schemes or limits on short-term rentals.

Compared to Truss, Sunak appears more likely to take a similar approach to regulation and reform as Boris Johnson.

This could increase the chances of the widespread rental reforms, including the banning of Section 21 evictions, passing through parliament without any changes.

Liz Truss, MP for South West Norfolk

After a late surge in the voting amongst Conservative MPs, Liz Truss saw off Penny Mordaunt to reach the final two.

Truss is more experienced than Sunak, both in the cabinet and as a government minister, and most recently held the position of foreign secretary:

So far, some of her biggest pledges include:

• £30 billion of tax cuts, including tax breaks for cohabiting couples
• a reversal of the planned rise in corporation tax
• a review of the Bank of England’s mandate
• getting rid of “top down Stalinist housing targets”

How could landlords be affected?

Liz Truss is promising the “biggest change in economic policy for 30 years” through cutting taxes and simplifying regulations.

Her pledge to reverse the planned rise in corporation tax (with hints she may even reduce the current rate of 19 per cent) could provide a boost for limited company landlords.

Meanwhile, her stance on simplifying regulations could lead to a slowing down of the regulation of the rental market. For example, some of the proposals in the Fairer Renting White Paper could be watered down or scrapped altogether.

With little detail on how Truss plans to review the Bank of England’s mandate, it’s hard to predict how landlords could be affected. However, a change to how the Bank of England works could see interest rates rise or fall, which could affect landlords’ buy-to-let mortgage repayments.

Three key landlord issues in the new prime minister

A new Prime Minister will have plenty of housing issues to deal with, from the construction of new homes to cladding regulations.

But what will they need to consider when it comes to the rental market?

1. Rental reforms

The government recently published its long-awaited white paper on rental reforms. It’s pledged to remove Section 21 evictions, encourage pet ownership in rental properties, introduce a rental sector ombudsman, and more.

What will happen to the Renters’ Reform Bill with a new prime minister and a reshuffle at the Department of Levelling Up, Housing and Communities?

It seems unlikely that the bill will be completely scrapped as the white paper has already been published.

However, depending on who gets the top job, some of the measures may be watered down to favour landlords.

2. Short-term lets regulation

A joint review of short-term holiday lets was launched by the Department for Digital, Culture, Media & Sport and the Department for Levelling Up, Housing and Communities at the end of June.

It aims to find out whether spot checks of short-term rentals, as well as a ‘kitemark’ registration scheme, would improve the quality of accommodation and compliance with health and safety rules.

Many believe that short-term lets are putting pressure on traditional housing stock, while the National Residential Landlords Association (NRLA) argues that those providing holiday lets can still benefit from the tax relief that long-term landlords can no longer claim.

The government’s consultation is due to close on 21 September, just a few weeks after the new prime minister is announced. Traditional landlords, plus residents in holiday let hotspots, will be hoping they take the opportunity to tighten regulation of this part of the market.

3. Energy efficiency rules

In recent years the government has had plans to increase the minimum Energy Performance Certificate (EPC) rating in rental properties from E to C.

No formal plans have been published, but it’s thought the extension would apply to new tenancies from 2025 and all existing tenancies by 2028.

Our research found that if these changes were to be introduced, 55 per cent of landlords would need to make improvements to their rental properties. These costs would come at an estimated cost of over £5,000 for 46 per cent of those we surveyed.

The new prime minister will need to weigh up the environmental and financial advantages of increasing the minimum EPC rating against the potential loss of housing from the market if landlords struggle to meet the criteria.

What do landlords want from a new prime minister?

The NRLA is calling on the new prime minister to encourage investment in the rental sector to meet rising tenant demand.

It says that tax changes such as the restriction of buy-to-let mortgage interest tax relief and the three per cent stamp duty surcharge have caused the number of private rental homes in England to fall by almost 250,000.

Research carried out by Capital Economics suggests that removing the stamp duty surcharge could lead to an extra 900,000 rental homes entering the market.

Ben Beadle, NRLA Chief Executive, said: “The last six years prove that it was nonsense to think that cutting the supply of rental housing when demand is so strong would make it easier for those saving for a home of their own. Driving rents up just leaves tenants with less cash to save for a deposit.

“We need a strong and vibrant private rental market that meets the needs of those who rely on the flexibility it provides, those who need somewhere to live before becoming homeowners and those for whom the promise of social housing tomorrow provides cold comfort today.”

We’ll hear much more from the two candidates on their plans for housing and tax over the coming weeks.

Keep checking this article as we’ll regularly update it, making sure that you’re in the loop about the candidates' policies and what they could mean for you.