The number of new landlords is expected to plummet by up to a quarter in the next five years as a result of measures introduced in the Budget.
On Wednesday, Rachel Reeves announced a 2 percentage point increase to stamp duty for the purchase of second homes, raising the charge from 3 per cent to 5 per cent.
The increase is expected to generate more than £1bn in tax for the Government over the next five years.
However, analysis of figures produced by the Office for Budget Responsibility indicates the number of second-home purchases – most which would have been bought by landlords – is expected to fall by 25 per cent by 2029.
Hamptons estate agency calculated that landlords’ stamp duty costs will nearly double by next April. This takes into account the increase announced at the Budget, as well as the end of the stamp duty holiday next Easter.
It is likely to mean that the supply of rental homes becomes even more limited, which could push rents higher.
Paul Johnson, director of the Institute for Fiscal Studies, said renters would “pay part of the cost” of the increase in stamp duty for second-home buyers and landlords “as the supply of such properties falls”.
The number of homes available to rent has not changed much since 2016 – staying at around 5.5 million – while demand has increased considerably over that time.
Research by property portal Zoopla shows that there are 16 people chasing every property to rent, double the number who were doing so in 2020.
“While we didn’t see measures in the Budget that would drive more landlords to sell up, like an increase to capital gains tax, there is a general feeling that landlords are being squeezed out of the market and they are not wanted,” said Aneisha Beveridge, head of residential research at Hamptons estate agency.
Richard Donnell, head of research for Zoopla, added that while there has not been a significant rise in landlords leaving the market in recent years, “the bigger problem since 2016 is we haven’t seen new purchases, and this trend will now continue after the increase in stamp duty.”
However, any increase will be capped by affordability, as many renters, particularly in city-centre locations, cannot afford to pay more no matter how imbalanced supply and demand becomes. Some renters, particularly those who are single, now have to keep moving to more affordable locations to find homes they can afford.
It was hoped by some that the stamp duty holiday would be extended in the Budget – a move that would have helped landlords and, subsequently, renters.
This holiday, brought in by the Liz Truss mini-Budget in 2022, means that anyone can currently buy a home for up to £425,000 without paying any stamp duty. But from next April it reverts to pre-2022 rates. This means that people buying homes below £125,000 will escape paying the tax (£300,000 for first time buyers) but anything above this is eligible.
Hamptons data shows the average landlord buys a home which costs around £200,000. Yesterday a property investor would have paid £6,000 in stamp duty, today it is £10,000 and from April 2025, that will rise to £11,500.
“The Budget documents suggest the direction of travel the government would like for the rental market is for institutional landlords to take a bigger share of the market”, says Ms Beveridge.
However, she said that the ideal situation for renters is for there to be a balance of both institutional investors – who have traditionally focused on expensive city centre new build schemes with facilities – and private landlords, who can provide a range of properties.