The Telegraph has published an article explaining how Rachel Reeves’s Budget tax raid is likely to push up rents, with homeowners expected to pass on costs to tenants.

The article can be read here (subscription may be necessary) and explains how the recent Budget measures introduced by Chancellor Rachel Reeves have significant implications for the buy-to-let property market in the UK, potentially exacerbating challenges for landlords and renters alike. Here’s a breakdown of the developments and their anticipated effects:

Stamp Duty Hike for Second Homes

  • Increase in Rates:
    • Stamp duty surcharge for second homes and buy-to-let properties to rise from 3% to 5% starting April 2025.
    • This effectively doubles the stamp duty bill on an average buy-to-let property (£8,452 to £16,190).
  • Comparison to Rent:
    • Stamp duty now equates to 11 months’ rent on average, rising to 13 months post-2025.

Market Reactions and Predictions

  • Landlord Exodus:
    • 6% increase in landlords listing properties for sale (November 2024, Rightmove data).
    • Higher entry costs deter new investors, while static capital gains tax encourages current landlords to sell.
  • Rental Cost Impact:
    • Landlords may pass on increased costs to tenants, driving up rental prices.
    • JLL warns of rising rents as landlords seek to offset higher expenses.

Criticism and Concerns

  • Economic Impact:
    • Paul Johnson (Institute for Fiscal Studies) labels stamp duty “the most damaging tax,” citing its effects on market mobility and rental prices.
  • Reduced Supply:
    • Fewer new landlords entering the market could worsen the supply-demand imbalance in the rental sector.
  • Exit Costs Static:
    • Capital gains tax remains unchanged, potentially making it more appealing for landlords to leave the market permanently.

Broader Implications for Renters and Investors

  • Higher Rents for Tenants:
    • With fewer landlords and rising costs, rental affordability may worsen for tenants.
  • Market Instability:
    • Increased taxes could deter much-needed investment in the rental market, exacerbating existing housing shortages.

Outlook

This shift aligns with broader government measures targeting housing affordability and rental market regulation. However, the unintended consequences—rising rents, reduced property investment, and supply shortages—pose challenges for both landlords and renters.

Policy Suggestions:

  • Reassess the stamp duty structure to avoid discouraging market participation.
  • Explore targeted incentives for landlords to remain in or enter the market.
  • Ensure new measures align with broader housing goals, including affordability and increased supply.

Landlords and prospective investors must prepare for these changes, potentially reshaping their strategies to navigate the evolving market.