Tenants will bear the cost of recent buy-to-let tax hikes for landlords as they will almost inevitably result in a fall in homes on the rental market that in turn will push up rental prices, say letting agents. 

Two thirds (65%) of landlords surveyed by the Association of Residential Letting Agents (ARLA) said that they will not be acquiring any more properties for buy-to-let following the recent surcharge on stamp duty and the cap on tax relief for buy-to-let mortgages, which in turn will cause a decrease in the supply of rental properties.

Tenants are widely expected to be worst hit by the changes as rents increase due to the reduction of properties available to let on the market, with the latest data from ARLA revealing that rent costs rose in March for a third (32%) of tenants.

What’s more, three in five (61%) of ARLA agents now believe that rents will rise further as a result of the changes.

ARLA’s latest Private Rental Sector report shows that the supply of rental housing stock on letting agents’ books fell in March to the lowest level since the start of last year.

Demand also dropped in March; ARLA agents had 33 prospective tenants registered per branch on average, down 11% from 37 in February.

Nevertheless, demand continues to heavily outweigh supply, which in turn is placing upward pressure on rental values.

The housing crisis is most acute in London where the average number of properties managed per branch was just 122 in March, against a UK average of 169.

Not only do ARLA agents forecast that rent costs will increase further, but they also believe that rental homes may also face a decline in quality over time, as landlords struggle to keep up with maintenance costs alongside the higher stamp duty charge.

Cox (below) added: “Whilst landlords adjust to the increase in costs we can expect to see one of three outcomes prevailing in the buy to let market: landlords absorbing the cost and taking the hit; landlords withdrawing from the market causing supply to fall; or landlords regaining those costs through hiking rents. Next month we can start to assess the damage.”