Landlord Tax Increases Could Drive Up Rents, Warns Paragon Bank
Paragon Bank chief Nigel Terrington cautions that higher taxes on landlords could lead to increased rental prices due to reduced supply and higher demand.
Rent prices are likely to increase if landlords face additional tax burdens in the upcoming Budget, according to Nigel Terrington, head of Paragon Bank. Terrington warned that punitive measures could reduce the number of available rental homes, thereby driving up costs for tenants.
"The Government may be pursuing a policy of not upsetting its more Left-wing backbenchers, and landlords are always a target," Terrington stated. "But further legislation or tax changes risk a situation where there will not be the landlords to provide homes."
From April, rental income will be subject to higher income tax rates ranging from 22 to 47 percent, marking the latest policy change impacting the buy-to-let sector. This follows a trend where approximately 93,000 landlords exited the market last year, with further departures anticipated.
Terrington highlighted the significant role of private landlords in the rental market, noting that social housing now constitutes only 8 percent of the housing stock, a substantial decrease from 33 percent in 1980. With 4.7 million households relying on the private-rented sector, this number is expected to grow as interest and mortgage rates rise. The Bank of England recently maintained its base rate at 3.75 percent but has signaled potential future increases.
"We’re expecting four base rate rises by the end of 2027," Terrington projected. "This means that more people who can’t afford to buy will be seeking a rental home."
Rental prices have already been rising at a pace exceeding inflation. Data from the Office for National Statistics indicated a 3.8 percent increase in average rents to £1,400 per month in the year leading up to August. In London, the average rent reached £2,332 per month. The introduction of the Renters’ Rights Act in May, which prohibits no-fault evictions and allows tenants to provide two months' notice, is also cited as a contributing factor to rising rents. Tom Bill, head of residential research at estate agent Knight Frank, suggested that landlords are increasing rents to compensate for the perceived higher risks and potential for rent collection voids.
Terrington also criticized local councils for what he described as inconsistent enforcement, allowing some landlords to disregard regulations while penalizing those who adhere to them.