Concerns are growing across the rental market as the Chancellor, Rachel Reeves, introduces plans to raise tax on rental income, a move some believe will put significant pressure on both landlords and tenants. One leading mortgage specialist has warned that this extra charge could be the final push that forces many landlords to leave the sector entirely, leading to fewer homes available for rent and further rises in monthly costs for tenants.
Simon Gammon, who founded and runs Knight Frank Finance, explained in an interview with The Independent that the proposed 2% rise on rental income is likely to be the “last straw” for landlords already struggling with rising costs and ongoing regulatory changes. He noted that the private rented sector is already stretched thin, and more landlords exiting will only worsen the already limited supply of rental homes.
Gammon added that flooding the sales market with former rental properties will not ease the situation for renters. In fact, with fewer homes available to let, he believes rents will continue climbing, making the system more difficult for everyone involved.
Industry professionals are also raising questions after it emerged that the Treasury did not complete an impact assessment to evaluate how the new tax rise might affect rental prices or housing supply. This omission has puzzled many in the sector, especially considering that rents have soared in recent years. Average rents rose by 8% in 2023 and an even higher 9% in 2024, with London seeing some of the steepest increases.
Gammon argues that landlords have been under mounting pressure for nearly a decade. He highlights the removal of mortgage interest tax relief in 2015 as the beginning of a long list of policy changes that have made it increasingly challenging for landlords to manage their finances. Since then, a series of further tax adjustments and new regulations have reshaped the buy-to-let market, and the introduction of the Renters’ Rights Act will add more complexity around evictions and rent increases.
The new 2p surcharge on each pound of rental income, proposed by Labour, could be the breaking point for many small landlords. Gammon warns that those operating on very tight margins may conclude that continuing simply is not financially sustainable. He suggests that some landlords who once accepted small annual losses will now be faced with far larger costs, turning modest deficits into thousands of pounds per year.
He predicts the real impact will start to become clear over the next two years, as landlords begin receiving their tax bills for the first years in which the new rate applies. At that stage, he expects many landlords to take the decision to sell, reducing the number of properties available to rent even further.
Gammon also pointed out that while the government published a brief impact assessment alongside the new measure, it did not evaluate how the tax increase might affect rent levels or supply. The document did, however, note that some groups may be hit harder than others, highlighting that members of the Asian community make up a higher proportion of landlords than their overall population share.
Overall, the message from the sector is that the combination of rising costs, years of regulatory reform, and this latest tax increase could push the rental market into even more challenging territory. With more landlords likely to exit and demand remaining strong, renters may face even higher prices and fewer homes to choose from.
Download NOW
4 Simple Steps To Becoming Wealthy Through Property