Renters in the UK could experience higher housing costs from 2027, according to new research indicating that landlords are preparing to pass on planned tax increases. Measures announced in last autumn’s Budget include a two-percentage-point rise in income tax rates on property income, set to take effect from April 2027. A recent survey of members by the National Residential Landlords Association (NRLA) suggests this increase will likely be absorbed by tenants through higher rental charges.
The planned tax adjustment means that landlords will face a larger tax burden on their rental income. For an individual landlord, this could reduce their net profits, prompting many to consider adjusting rents to maintain their current income levels or cover increased operational costs. The NRLA survey highlights a sentiment among its members that passing these costs onto tenants is a probable outcome, given the existing financial pressures on the sector.
This potential rise in rental prices comes at a time when many renters are already struggling with affordability. The UK rental market has seen significant increases in recent years, driven by a combination of high demand, limited supply, and rising interest rates impacting landlords' mortgage costs. For instance, recent data from Rightmove indicated average asking rents outside London were up by 8.5% annually in March, with London seeing a 5.3% increase over the same period. Any further increase could exacerbate the cost of living crisis for millions of households.
The implications of such a move are far-reaching, particularly for first-time renters and those on lower incomes. While existing homeowners benefit from fixed mortgage rates or are less exposed to rental market fluctuations, the private rented sector remains a crucial housing option for a significant portion of the population. The government's previous efforts, such as the now-closed Help to Buy scheme, aimed to assist first-time buyers, but the ongoing challenges in the rental market persist.
For landlords, the tax hike represents another financial pressure alongside rising mortgage interest rates and increasing regulatory compliance costs. While the government aims to ensure a fair taxation system, landlords argue that additional taxes can disincentivise investment in the private rented sector, potentially leading to a reduction in the availability of rental properties. This could further intensify competition for homes and drive up prices.