With the number of homes coming up to let in short supply, the government may wish to think twice about potentially increasing capital gains tax, while greater clarity regarding the Renters’ Rights Bill is needed.

There have long been calls for the government to reconsider the way landlords are taxed in a bid to incentivise new investment in the buy-to-let sector.

Demand for privately rented accommodation continues to grow, but fresh data from Zoopla shows an alarming fall in the number of available properties to rent, as more tenants look to renew their existing tenancies rather than move home, will more landlkords look to sell up, adding to the widening supply-demand imbalance in the PRS.

The tax relief changes for buy-to-let landlords over the past few years deterred many investors from investing in the private rented sector, owing to a sharp fall in net rental returns, but the real losers have been private tenants.

With many landlords having their profits wiped out, the majority of those who have continued to invest in the private rented sector have been left with little alternative but to recoup their losses through high rents, with tenants paying the price of the government’s tax-grab.

A CGT change and the first look of the Renters’ Reform Bill is likely to result in more landlord leaving the market, despite competition for rental properties rising, according to Greg Tsuman, director of lettings, Martyn Gerrard.

He believes that without balanced protections for landlords – especially reversing Section 24 of the Finance Act so that they can again claim mortgage rate relief – letting out properties is being made simply untenable.

Tsuman said: “It’s disappointing to see that today’s figures show we have taken a step backwards from the positive progress the rental market was making, as the market and rents had been stabilising somewhat due to easing inflation and interest rates. I suspect that the rise from 17 would-be tenants for every rental property on the market last month up to 21 today is in part a reaction to the rumoured changes to the capital gains tax as well as the Renters’ Rights Bill, which we’ve now seen for the first time. Whilst the proposals in the Bill itself pose little threat to landlords, it has created a sense of uncertainty, and the reality is that landlords are now looking sell up and get out of the market.

“It therefore remains crucial for the government to do more to keep landlords in the market, and the most impactful thing it could do is to reverse Section 24 of the Finance Act, which prevents landlords from claiming mortgage relief on their rental properties. This treatment of landlords is totally different to any other business, as it allows the government to tax landlords even on a loss-making tenancy. The effects of this are most acutely felt in London, where the majority of landlords have financing secured against their property. As the figures today have shown, all this does is force landlords to sell, creating higher competition for renters and ultimately driving rents up to the extent that the government has to intervene with legislation like the Renters’ Rights Bill. The imbalance between support for landlords and tenants is essentially forcing tenants to create bidding wars between themselves.

“Landlords will have also been spooked by the Bill’s lack of clarity over how they will be able to evict anti-social tenants, those that are repeatedly late on paying rent, and others that are abusing the system, adding the risk that landlords may be stuck with tenants who are not paying rent and incur losses which will ultimately be passed to future tenants through rent increases.

“Overall, I would caution that unless the government introduces policies to balance support for renters with sufficient support for landlords, we will soon see the ratio of renters to rental properties rebound up to the historically high levels we saw in November 2022, when there were 45 hopeful renters for every property available. It is telling that in 2017, before the introduction of Section 24 of the Finance Act, this ratio was as low as 3 renters for every property, but that it spiked sharply after Section 24 was introduced. We simply must avoid sleepwalking into a catastrophe where renting becomes a privilege of a few whilst others look at similar waiting lists to those seeking social housing, if not sleeping rough or in temporary housing.”

With the abolition of Section 21 now certain and timeframes clearer, Paul Shamplina, founder of Landlord Action, warns that in the next six months, many landlords will rush to serve Section 21 notices before the ban takes effect.

He said: “While I support changes such as improvements to property conditions, my main concern is the broken court system. Good landlords will benefit from clearer regulations, but promises of robust eviction grounds mean little if the courts remain overwhelmed. We already have cases where landlords are owed two years of rent but can’t reclaim their properties, with one of our cases dragging on for 19 months without a hearing date yet.

“Landlords aren’t banks, and many rely on rent to cover mortgages or fund retirement. Nearly a fifth of properties for sale are from landlords leaving the market, forcing tenants to find homes in an already tight market.

“Without landlords, the private rental sector (PRS) collapses. As more landlords exit, rents will rise, and housing will become scarcer, ultimately harming tenants. Protecting tenants is crucial, but without fixing the court system, the entire rental market faces chaos.”

Adam Jennings, head of lettings at Chestertons, added: “With some landlords deciding to sell up amid tax changes and the Renters’ Rights Bill, the number of available rental properties is likely to see a slight decrease over the coming months. Although this dip will unlikely be permanent, it will result in an even more concentrated level of tenant demand per available property that will trigger rents to go up further.”

More pain for renters as landlords sell up