Are We Taxing and Regulating Private Landlords Out of the Market? And What Does That Mean for Tenants?

There has been considerable debate about the impact of recent tax and regulatory reforms on private landlords.

Much of that debate presents landlords on one side and tenants on the other. I think that misses an important point.

The financial pressures being placed on landlords do not exist in isolation. Additional costs will either be absorbed, lead landlords to leave the market or, where the market allows, be reflected in higher rents.

And nowhere is that tension more apparent than in London.

The private landlord is not necessarily a large corporate investor

There is sometimes a perception that private landlords are large-scale professional property investors.

The reality is rather different. Government research shows that 45% of private landlords own only one rental property, while only 17% own five or more.

For many individuals, a rental property forms part of their pension or long-term financial planning, without the economies of scale available to institutional landlords.

Yet they have faced a succession of additional costs and obligations, including restricted mortgage interest relief, increased borrowing costs, higher maintenance and compliance costs and substantial changes to residential tenancy regulation.

The Renters' Rights reforms change the equation again

The Renters' Rights Act 2025 introduces significant protections for tenants and major changes for landlords, including the abolition of section 21 and a new possession regime. The new system has applied to private tenancies from 1 May 2026.

Protecting tenants is plainly important. But we must also recognise the cumulative commercial effect on those providing the accommodation.

Take a landlord who genuinely wishes to sell. Under the new regime, Ground 1A can be relied upon where the intention is to sell, but restrictions apply to subsequently marketing or re-letting the property for a prescribed period.

A landlord may therefore recover possession intending to sell, only to discover there is no buyer at an acceptable price.

The property can then sit empty.

There is no rent coming in, but the mortgage, service charges, insurance, council tax, repairs and other ownership costs do not disappear.

That risk inevitably becomes part of the calculation when deciding whether to remain in the sector.

Then comes another increase in property taxation

Against this backdrop, the 2026 Budget adds further pressure.

From April 2027, the proposed basic, higher and additional rates applicable to property income will rise to 24%, 44% and 49% respectively for unincorporated landlords, adding two percentage points to the rates previously announced.

For a higher-rate taxpayer, that means potentially paying 44% tax on property income, while mortgage finance cost relief remains restricted.

For landlords with borrowing, the important figure is not simply the rent received but what remains after mortgage costs, tax, repairs, service charges, insurance, regulatory compliance and void periods.

That calculation is becoming increasingly difficult to justify.

And ultimately tenants can end up paying the price

This is the part of the debate that deserves greater attention.

You cannot continually increase the cost and risk of supplying rental accommodation without considering what happens to its price and availability.

A landlord cannot simply increase the rent by whatever amount they choose. Rents remain constrained by affordability and the market.

But where demand already exceeds supply, particularly in London, increasing landlords' costs while reducing the number willing to remain in the market risks putting further pressure on rents.

The effect can become circular:

• landlords face greater tax, regulatory and financing costs;
• some seek higher rents where the market supports them;
• others decide the return no longer justifies the risk and sell;
• the stock of privately rented homes can reduce;
• tenants compete for fewer available properties; and
• that competition can put further upward pressure on rents.

So although these reforms are principally directed towards taxation and tenant protection, the economic cost does not necessarily stop with the landlord. Some of it may ultimately be passed through to tenants.

Landlords are already reconsidering their position

This is not simply theoretical.

The 2024 English Private Landlord Survey found that 31% of landlords planned to reduce their portfolios over the following two years, compared with 22% in 2021 and 16% in 2018.

The latest tax changes provide another reason to reconsider.

Some landlords will sell. Others will retain fewer properties. Some may consider limited company structures for future investment, although incorporating an existing personally owned portfolio is not straightforward. Capital gains tax, Stamp Duty Land Tax, refinancing and professional costs may all need consideration.

That leaves a fundamental question:

Do I continue investing, restructure, reduce my portfolio or simply leave the private rented sector?

Selling rental properties does not necessarily solve the housing problem

There is, of course, another side to the argument.

More landlords selling could increase the number of properties available to owner-occupiers and first-time buyers, which is positive where renters can make that transition.

But not every tenant can afford or wishes to buy.

London in particular needs a functioning rental market for people at different stages of their lives, including young professionals, families, students and those moving to the capital for work.

A home moving from the rental sector into owner-occupation does not create an additional home. It changes who can occupy the existing one.

If the number of households needing to rent remains high while available properties contract, there is an obvious risk of increased competition and higher rents.

There is also an irony. If smaller private landlords increasingly conclude that residential property is no longer attractive, we may gradually see more of the rental market controlled by larger corporate and institutional landlords, precisely as the smaller individual investor retreats.

We need to consider the cumulative effect

None of this is an argument against regulation.

Tenants should be entitled to safe, properly maintained homes and meaningful protection against poor landlord practices. Good landlords should meet those standards.

But housing policy cannot look at each tax or regulatory measure in isolation.

The relevant question is the cumulative effect.

Mortgage interest restrictions, higher borrowing costs, increasing compliance obligations, possession reforms, restrictions following possession for sale and higher taxation of property income all alter the risk-and-return calculation.

At some point, an individual landlord with one or two properties will understandably ask:

"Why am I still doing this?"

If enough landlords reach the same conclusion, rental supply may contract. If demand remains, tenants ultimately feel the consequences through greater competition, less choice and potentially higher rents, particularly in London.

The challenge is finding the right balance

The debate should not be framed as landlords versus tenants. Their interests are more closely connected than that.

A sustainable private rental market needs to provide tenants with security and decent-quality homes while giving responsible landlords a rational economic reason to provide them.

If we protect the tenant but progressively remove the incentive to be a landlord, we risk solving one problem while creating another.

The objective should surely be a rental market with better protection, good landlords, more homes and sustainable rents, rather than regulation and taxation that inadvertently encourage responsible private landlords to leave.

A final thought for landlords

For landlords considering whether to sell, refinance, restructure or incorporate, these decisions should be considered carefully and preferably before possession or sale steps are taken.

The tax consequences can be significant, while new possession and re-letting restrictions mean timing also matters.

What used to be a relatively straightforward decision to "sell the rental property" now requires much more joined-up legal, tax and financial planning.

This article is intended as general commentary only and does not constitute legal, tax or financial advice. Landlords should take advice appropriate to their own circumstances

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