Plans to extend National Insurance contributions to rental income could trigger a significant contraction in the private rented sector according to research by buy-to-let lender Landbay.

The firm said that more than seven in 10 mortgage brokers believe their landlord clients would sell some or all of their properties if the measure is introduced, reducing the supply of rental homes and driving up rents.

Landbay’s survey of intermediaries found that 45% of brokers expect most of their landlord clients to sell their entire portfolios and exit the market, while a further 27% believe landlords would sell part of their holdings but remain in the sector. Only 5% said they thought clients might expand their portfolios.

DELAYED BUDGET

The potential impact comes as the Chancellor, Rachel Reeves, considers applying National Insurance to rental income in her delayed Autumn Budget next month.

Treasury officials believe the move could raise about £2.3 billion annually, though critics argue that widespread landlord exits would erode the expected yield and exacerbate pressures on tenants.

Landbay said the proposed policy risked shrinking an already constrained rental market, where demand continues to outstrip supply, particularly in London and other major cities.

PLANS MIGHT BACKFIRE

Rob Stanton, sales and distribution director at Landbay, said: “Rachel Reeves is looking for tax raising measures that will enable Labour to claim it has not broken its election promise to increase VAT, income tax or NI. But she may not raise as much as she expects.

“The amount of tax she expects to raise is based on ONS figures which show that, during the most recent tax year data published (2022/3), some 2.2 million landlords received £27 billion in rental income. I am worried this might backfire though.”

DRIVE UP RENTS

He added: “First, she’s not going to raise that much if a million landlords sell-up, however resilient the sector is in the face of market interference.

“Exacerbate the housing crisis for renters.”

“Second, this could drive up rents – as demand for rental property outstrips diminishing supply and remaining landlords look to recoup the cost by raising rents. That could exacerbate the housing crisis for renters.

“If there’s a positive here, given that smaller landlords are the ones most likely to leave the market, this could lead to increasing professionalisation of the private rented sector – and drive moves to limited company structures as landlords look to adapt to the change.”