Budget tax rise fuels concern over landlord sell-off – Knight Frank

While the government claims it wants to cool inflation, its recent Autumn Budget has opened the door to higher rents and a landlord sell-off, one analysis reveals.

The findings from Knight Frank show that Chancellor Rachel Reeves’ 2 percentage point rise in rental income tax will inevitably push up housing costs.

With more landlords facing reduced margins, some will exit the private rented sector as a result.

Tax burden on landlords

Tom Bill, the head of UK residential research at Knight Frank, said: “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.”

He added: “There is already evidence of upwards pressure on rents in prime London markets.

“Average rental values in prime central London increased by 1.8% in the year to November.

“In prime outer London, there was a rise of 2.2%.”

Tax will lead sell-off

Gary Hall, the firm’s head of lettings, said: “In the majority of cases, landlords are happy to manage the changes the Renters’ Rights Act is bringing, but further margin erosion from an already low base will drive them away from the sector.

“Losing control of an asset that isn’t generating any return is far from a good investment, and one that will be sold quickly.”

Knight Frank says that the growing financial burden means more landlords are now looking at incorporation.

However, PRS rental yields are increasing because of rising rents and house price declines.

Data shows that average rents have risen by +35% since November 2019 in prime central London, which compares to 2% over the preceding six years.

In prime outer London, rents grew by 33% over the same period compares, and just 8% in the six years prior to Covid.