The pace of UK rental income growth has more than halved since the 3 per cent stamp duty levy came into force in April 2016.
Annual UK rental income growth slowed to 0.90 per cent in March 2017 - less than half of the rate of 2.27 per cent seen at the end of March 2016, according to the latest Landbay Rental Index.
Outside of London, the pace of growth has slowed by more than a quarter since the tax hike, dropping from 2.43 per cent in March 2016 to 1.78 per cent in March 2017 and taking the average rent to £752.
In London, average rents fell by 0.7 per cent in March – the 11th consecutive month in which they have declined – but they remain well above the £1,191 national average at £1,880.
Kensington and Chelsea (-3.65 per cent), Westminster (-2.64 per cent) and Camden (-1.49 per cent) witnessed the capital’s sharpest falls, while rents in Barking and Dagenham (2.72 per cent), Havering (2.70 per cent) and Bexley (2.25 per cent) have all seen significant growth as interest in outer London boroughs rises.
Paul Brett, managing director of intermediaries at Landbay, said: “The last 12 months have been tough for the private rented sector, a period marked by the stamp duty surcharge last April, followed by changes to mortgage interest tax relief, tighter underwriting criteria and the pending ban on letting agent fees.
"Intermediaries need to be confident in advising their clients on how to navigate what can appear from the outside a complex sector, but the flexibility and growing popularity of buy to let means the subject will become a more regular topic of conversation for brokers nationwide."
Tony Silver, director at London-based White House Mortgages, said tougher stress tests from lenders, rather than stamp duty, have had an impact on the buy-to-let market in the capital.
"It is not a straightforward answer; it is much more complex," he explained. "I don't really think stamp duty has made that much difference in London, because you have to be earning a lot of money anyway. An average property in London is going up and will continue to go up.
"It is the stress tests that are causing the problem. It is getting harder to make the maths work because the lenders have introduced a new requirement that the rental income should cover 140 per cent at a mythical 5.5 per cent."
simon.allin@ft.com
