The private rental sector may be approaching a "watershed" moment as landlords begin to feel the effects of recent tax changes reflected in their tax bills for the first time this month, a trade association has warned.
The Intermediary Mortgage Lenders Association (Imla) warned the introduction of various tax and regulatory changes since 2015 would begin to have an effect on property availability and tenant choice in the rental sector.
The body expects policies to contribute to higher rents for tenants, which would in turn make it harder for those who are trying to save for deposits to buy their own homes.
Landlords have been subject to a number of regulatory changes in recent years, with the introduction of an additional 3 per cent stamp duty surcharge on second homes in April 2016, which was closely followed by cuts to mortgage interest tax relief.
Buy-to-let borrowers are also now subject to more stringent affordability testing under the Prudential Regulation Authority's tightened underwriting rules.
Imla believes this year's tax return will be the first time many landlords will see the effects of these policies on their earnings.
Kate Davies, executive director of Imla, said: "These measures continue to erode the buy-to-let sector, and in turn the whole private rental sector.
"In fact, we may be approaching a watershed, as landlords will only be starting to feel the adverse effects of income tax changes when these are reflected in their tax bills for the first time this month."
Ms Davies suggested a recent period of subdued rental price increases may be disguising the true effect of these changes on the rental market.
She said a report published by IMLA in early 2018 had shown the "continued erosion" in buy-to-let, with net investment in rental property "collapsing" by 80 per cent over the course of two years.
She added: "It is no coincidence that, despite a growing contribution from build to rent, 2017 brought an abrupt reversal to 16 years of uninterrupted growth in the stock of private rental dwellings."
Ms Davies said: "Buy-to-let landlords represent a key element of the private rental sector, providing homes for a very wide spectrum of households and including many benefit claimants who would in the past have had access to social housing.
"We consider it vital that no additional measures should be introduced which could risk further eroding the health of the private rental sector or the well-being of those who rely upon it."
David Hollingworth, associate director of communications at London & Country Mortgages, said: "The raft of change to the buy-to-let market, which includes stamp duty and tighter criteria as well as the reduction in tax relief on mortgage interest, was always going to hit the market hard."
Some landlords will have already factored the tax changes into their calculations but some may still face a nasty shock when they submit their returns, said Mr Hollingworth.
He added: "Demand for rental property is likely to remain strong and whilst there was a feeling that the buy-to-let market may have been growing too rapidly there’s equally a risk if it contracts too far.