Despite strong fundamentals in the private rented sector (PRS), a mood of pessimism has set in among landlords, largely due to anticipated policies from the new Labour government, according to research from mortgage market specialist Pegasus Insight. While tenant demand is high, average rental yields have hit a 10-year high at 6.5%, and the majority of landlords are making a profit, a significant 91% feel that the new government stance is unfavorable toward landlords. Concerns center on potential tax changes, including increased capital gains tax (CGT), rent caps, elimination of Section 21 no-fault evictions, and mandatory licensing.

The possibility of CGT changes has prompted many landlords to consider exiting or reducing their presence in the rental market: 39% would halt further investment in the PRS, nearly 20% would sell all their properties, and a further 16% would sell some properties. Additionally, 26% would likely raise rents to offset financial impacts, which would further pressure tenants. Notably, 41% of landlords plan to sell property in 2025, with leveraged landlords and those owning larger portfolios being more likely to reduce their holdings.

This sentiment of uncertainty and a possible “sell-off” trend has implications for the rental market. With reduced property availability, rent prices could rise, intensifying the existing supply-demand imbalance. Mark Long, founder of Pegasus Insight, emphasized the importance of government support for the PRS, noting that a heavy CGT burden could worsen rental affordability. He urged the chancellor to consider policies that would reassure landlords, who provide housing for about 20% of the population, in the upcoming Budget.