Knight Frank has accused the government of fuelling rental inflation after it raised rental income tax by 2% by 2027 in the Autumn Budget.
Tom Bill, its head of UK residential research, said: “For a government so concerned about inflation, it appears relaxed about the prospect of rising rents.
“There were disinflationary measures in the Budget, including on energy costs and rail fares, but tenants must now be left wondering if their overall monthly outgoings will increase.
“The economic rationale is simple. As the tax burden on landlords increases, more will sell, supply will fall, and rents will rise. For those landlords that remain in the sector, any extra costs may need to be passed on.
“In the words of the Office for Budget Responsibility alongside the Budget: “This successive eroding of private landlord returns will likely reduce the supply of rental property over the longer run. This risks a steady long-term rise in rents if demand outstrips supply.”
More landlords are likely to be pushed out of the sector due to the tax rise.
However, for landlords staying in the sector, rental yields are increasing due to rising rents and price declines.
Average rental values in prime central London (PCL) increased by 1.8% in the year to November. In prime outer London (POL), there was a rise of 2.2%.
New rental listings in PCL and POL in the first 10 months of this year were 9% below the five-year average, Rightmove data shows.