Landlords exiting the market because of tax and red tape have led to “an acute shortage of available properties to rent” across the country. 

Analysis by property website Home says the dearth of rental properties is a UK-wide issue but is now particularly severe in London where there has been a 20 per cent drop in the number of properties available to rent over the last 12 months.

Over the same period there has been a 12 per cent fall in the number of available rental properties across the UK.

This reduction in supply is leading to a surge in rents, especially in the richest parts of London.

In the London borough of Westminster the average monthly rent now stands at £5,292, up 24 per cent on June 2017’s figures. Over the last 12 months the number of properties available to rent in this borough has fallen by 447 to 2,673.

Rents have also rocketed in Kensington and Chelsea, where the average monthly rent is £5,502, an increase of 14.7 per cent over the last year. This borough has also seen a dramatic fall in supply of 427 properties over the same time, taking June 2018’s tally to 1,584.

Home says strong demand and falling supply is ensuring that properties in such areas are still highly sought after, even at their premium rental prices. In K&C and Westminster the latest data shows that the typical rental property is on the market for just 39 days, a day less than the same month last year.

So far such price hikes have not yet translated into high yields for landlords. 

The gross rental yield in Westminster is still only around 3.0 per cent but Home says the trend is upwards and those landlords that continue to let their properties in these boroughs will soon start to benefit from improved returns as rents keep shooting up.

However, as has been well documented on Estate Agent Today, underlying capital values are falling – so much so, in fact, that real yields in central London are negative overall. 

The typical asking price for a flat in Westminster has dropped 7.0 over the last year and this negative trend is a clear driver for landlords to exit while they still can.

Since April last year individual buy to let investors have been unable to offset all their mortgage interest against their profits and within the next two years none of this interest will be tax deductible.

Stamp duty changes came into force in 2016, which means anyone purchasing a buy-to-let property or second home must pay an extra 3.0 per cent in stamp duty.

Right to Rent legislation, also rolled out nationally in 2016, now means that landlords must check the immigration status of their tenants or face unlimited fines or even a prison sentence.

“The current situation is particularly dire for tenants, who are set to continue to face increasing competition for good quality properties and rising rents” says Home’s director Doug Shephard.

“Government red tape and higher taxation in the lettings market has triggered forced sales by landlords. Moreover, this additional supply is now negatively impacting on capital values. Vendor landlords have done their maths and they know that if they continue to let the property, even with a rent hike, they will be losing money overall. Conclusion: time to sell,” he says.