Breathing Space for Today, Rent Rises for Tomorrow

Chancellor John Healey used the expression “breathing space” 13 times during his Budget speech in October.

The title of the Budget was “Breathing Space for Today, Fresh Hope for the Future”.
To help with energy bills, he pledged a one-off £100 payment for homes in council tax bands A to D in England.

Unfortunately, the Budget is likely to have the opposite effect on rents, the biggest cost for the 4.7 million English households renting privately, which is about one in five of all homes, according to the English Housing Survey.

Instead of breathing space, the Chancellor announced a further tax increase on rental income for landlords, meaning a combined rise of 4 percentage points in April 2027. It will take the rates for basic, higher and additional-rate taxpayers to 24%, 44% and 49%. I discussed the implications on a recent episode of Housing Unpacked with Nimesh Shah, the CEO of tax advisory firm Blick Rothenberg.

Landlords Squeezed

It is the latest in a series of measures that have squeezed landlords, including the restriction on mortgage interest relief, the higher stamp duty surcharge, the Renters’ Rights Act and tougher minimum energy efficiency standards, as we explored here. 

Some landlords have sold while others have increased rents to reflect the more challenging financial landscape, a trend the OBR itself warned about in its Budget forecast.

Average rents in England rose 4% to £1,466 per month in September, ONS data shows. The index began in 2015, and annual growth didn’t get above 4% until July 2022. The pandemic played its part, but average growth since then has been 6.5%.

It means tenants are paying about £672 more per year, which eclipses the impact of any energy bill support announced by the government, including the electricity VAT cut. In London, average rents rose 3.5% to £2,338 in the year to September, which is about £948 extra per year.

Prime Under Pressure

In prime outer London, average rents rose by 3.3% in the year to October, which was the largest increase since June 2024, when rents were coming down from pandemic-era double-digit highs. It means rents in POL are now 39% higher than they were pre-Covid.

Demonstrating how supply has fallen in recent years, there were 17% fewer new rental listings in prime central London (PCL) and POL in October this year compared to the same month in 2019, Rightmove data shows.

Underlining the strength of demand versus supply, there were 6.3 new tenants for every new rental listing in the three months to October in PCL and POL, Knight Frank data shows. That compared to 5.3 last October and 4.8 two years ago. Tenant demand has been boosted by higher mortgage costs this year as fewer people can afford to buy.

Rental growth has been less marked in PCL because a weak sales market has pushed more discretionary owners to let their property. Average rents in PCL increased 1.4% in the year to October, which was the strongest rise this year.
As upward pressure on rents persists, tenants will be holding their breath rather than finding breathing space.