The government’s crackdown on landlords is set to hammer London’s rental market, push up costs for tenants and shrink the supply of properties, industry figures and estate agents have warned. 

Property experts and estate agents told that John Healey’s hike to tax on rental income is the latest blow in an assault on landlords, which is already pushing many in the capital to sell up. 

At his maiden Budget on Wednesday, the Chancellor set out a two per cent hike to tax on income from property, on top of a two per cent increase that was already due to take effect from April. 

The Office for Budget Responsibility, the UK’s fiscal watchdog, warned the Treasury that this measure will push up rents across the country by encouraging landlords to pass on these extra costs and deterring new homeowners from entering the sector. 

Rupal Patel, director of Winkworth’s estate agency in Shepherd’s Bush and Hammersmith, said he received calls from several of his landlords just hours after the Budget, telling him that they were weighing up selling out of the rental market. 

“Historically, rental prices have always gradually edged up and up and up, and that’s part of inflation and everything else,” he said.

“But with more and more rules and legislations that the government’s introducing, I think it’s just scaremongering landlords to say enough is enough now, and they’re selling up.”

Patel added that the renters’ rights act, which came into force in April, has encouraged some landlords to consider pushing up rents when they otherwise would have left them unchanged. 

Though he thinks the abolition of no-fault evictions was positive for renters, the decision to restrict rent rises to one window every year makes it more likely for some landlords to hike. 

He said: “Now the landlords are saying, ‘well, I only have this one opportunity once a year to increase rents. If I don’t do it now, I won’t be able to do it for another year, so I should do it’, because they don’t know where they’re going to be in a year’s time.”

Landlords an ‘easy target’

Tom Bill, the head of UK residential research at Knight Frank, said Labour is treating landlords as an “easy target”. 

Though the renters’ rights act, which estate agents say had already pushed landlords to exit the sector, was first set out under a Conservative government, this latest tax hike has worsened this assault on the rental sector, Bill said.

“It’ll put downward pressure on supply and upwards pressure on rents. It’s already quite a tight market, and rents are very high for tenants. It’ll just aggravate that.”

Timothy Douglas, head of policy and campaigns at Propertymark, the trade body for estate agents, said the “steep and punitive” tax hike on landlords will shrink the number of homes available for rent, particularly in the capital.

“Propertymark is concerned about the cumulative impact of successive changes on landlords’ confidence and willingness to invest in the private rented sector,” he said.

Other property industry figures have criticised Labour for taking measures which they say will shrink the country’s rental stock at the same time that the Prime Minister is attempting to eradicate homelessness.

“As the Government tries to end homelessness, it couldn’t have picked a better way to cause it to surge,” said Greg Tsuman, managing director for lettings at estate agency Martyn Gerrard.

The stock of housing available for rent is set to shrink just as housebuilders warn that construction in London is becoming increasingly unviable. 

Top builders like Taylor Wimpey and Berkeley Group have both warned in recent weeks that the rising burden of red tape – along with objections into the planning process launched by locals and by central government – is “eroding” the economic case for building homes in the capital.

Housebuilding stalls

The OBR’s response to the Budget revealed that the country’s rate of housebuilding is set to slow for three consecutive years, owing to “wider pressures in the construction sector because of weak demand, rising material costs and the impact of other regulatory changes”.

This puts fresh pressure on the government’s pledge to build 1.5m homes by the end of this Parliament, which housing secretary Angela Rayner all-but abandoned when she dubbed it a “stretch” target.

The rate of mortgage approvals in the UK fell for the third consecutive month in September, from 54,814 to 53,443, it was revealed on Thursday. Mortgage rates have soared since the Iran war broke out in February, causing Brits to hold off on moving house.

Martin Beck, chief economist at WPI Strategy, said: “If the disruption persists, the prospect of a meaningful recovery will recede further. The housing market’s fortunes are increasingly being determined by events thousands of miles away.”

Though events in the Middle East are slowing the construction of new homes, estate agents in London said decisions being made in Westminster are piling further unnecessary pressures on landlords and tenants. 

Dominic Agace, chief executive of Winkworth, said many landlords are “already facing increased costs and regulation through the Renters’ Rights Act. As more households remain in the rental sector due market uncertainty, measures that discourage investment only make this worse.”