Rents are expected to soar by 15% in the coming five years as the shortage of properties available to let intensifies.
Letting agents reported the number of new instructions they had received fell for the 21st consecutive month in June, according to the Royal Institution of Chartered Surveyors (RICS).
The group said anecdotal evidence suggested recent tax changes were to blame, as they made buy-to-let significantly less appealing to investors.
Geoff White, RICS policy manager, said: “The situation in the private rented sector gives great cause for concern as supply continues to drop.
“It would appear that the new policy on taxes and stamp duty have made it so difficult for landlords at a time when the UK needs more homes to rent, that many continue to exit the market.”
Why is this happening?
The Government's significant tax hikes on landlords in the past couple of years include a 3% stamp duty surcharge, a tapering of mortgage interest tax relief and an end to the ‘wear and tear’ allowance.
The move is designed to make the sector less appealing to investors to help more first-time buyers get on to the property ladder, as the two groups typically compete for the same properties.
But it has led to a significant fall in people buying properties to rent out, at a time when the supply of homes to let was already failing to meet demand.
This mismatch between supply and demand is forcing rents higher.
Who does it affect?
The Government’s measures, combined with schemes such as Help to Buy, have led to a jump in first-time buyer numbers, making them the only group of buyers that are currently increasing.
But while they may have helped some people purchase their first home, they are likely to be bad news for those who are currently saving for a deposit.
If rents rise by 15% in the coming five years, aspiring homeowners will see more of their income eaten up by housing costs, leaving them with less cash to set aside towards a housing deposit.
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What’s the background?
RICS said activity in the wider housing market continued to be subdued, with the number of sales agreed falling for the 16th month running.
New buyer enquiries also remained flat, continuing a trend started in late 2016.
But the number of properties being put up for sale rose for the second month in a row, although the stock of homes estate agents had on their books remained close to record lows.
Unsurprisingly given the current low levels of activity in the market, prices remained flat in June, and estate agents expect little change in the coming three months.