UK buy-to-let sector fears surge ahead of Budget as proposed taxes threaten rental market stability

Landlord research by mortgage market specialist Pegasus Insight reveals mounting anxiety within the buy-to-let sector ahead of the UK Government’s forthcoming Budget on 26 November 2025. The sector is bracing for significant changes, particularly in taxation, that many fear could accelerate the exodus of landlords from the Private Rented Sector (PRS), further straining the housing supply and driving rents even higher.

Central to these concerns is the proposed introduction of an 8% National Insurance (NI) charge on rental income, which has emerged as the predominant worry for landlords. According to Pegasus Insight’s latest Landlord Trends Q3 2025 report, more than four-fifths (81%) of landlords describe this potential tax as “very concerning.” This proposed NI charge is seen as a particularly alarming development, not only because it threatens to erode profitability but also because it signals yet another layer of taxation on what is already considered a heavily taxed investment sector.

Capital Gains Tax (CGT) changes are also a major source of apprehension. Nearly three-quarters (73%) of landlords express strong concern about possible alterations to CGT on property sales, a figure that rises to 85% among those who have sold or intend to sell property within the coming year. This anxiety coincides with data revealing that 40% of landlords plan to sell at least one property in the next twelve months, while a mere 7% are looking to purchase more properties. These trends hint at a further contraction in rental stock, exacerbating a supply squeeze that has already pushed rents to record highs.

Mark Long, founder and director of Pegasus Insight, highlights the severity of the cumulative tax pressures faced by landlords. Speaking to Landlord Today, he noted, “The tax burden is now seen by landlords as every bit as threatening as regulation. The possibility of a new National Insurance charge on rental income is causing alarm across the sector, not just because it would erode profitability, but because it would further undermine confidence in what has already become a heavily taxed form of investment.” He adds a note of caution for policymakers: “If the November Budget adds yet another layer of taxation, we can expect more to exit the market in 2026, further reducing rental supply at a time of rising demand. The government needs to tread carefully , short-term revenue gains could come at the expense of long-term housing stability.”

Investment and mortgage broker Joseph Lane, founder and director of Mortgage Lane specialising in HMOs (houses in multiple occupation) and buy-to-let properties, offers a nuanced perspective on the sector’s resilience despite the challenging landscape. Lane notes that HMOs remain one of the more robust segments within the PRS owing to sustained tenant demand for affordable shared accommodation and the rise of specialist lenders providing tailored products to professional landlords. This segment’s relative stability is also supported by a stable interest rate environment and yield-based valuations, making it well-positioned to withstand some of the policy changes.

Nevertheless, Lane highlights continuing challenges from non-tax regulatory pressures such as tightening local authority rules including Article 4 Directions, licensing requirements, and evolving energy performance certificate (EPC) standards. He further discusses the rising discourse around reforming property-related taxes, including replacing stamp duty with more progressive annual property taxes, council tax revaluations, and potential levies on higher-value properties. While these reforms could reduce transactional friction and enable landlords to restructure portfolios more efficiently, Lane warns that annual property levies would likely increase operating costs, particularly for larger HMOs or expensive properties in London.

Moreover, Lane points to speculation that aligning taxation on rental income with that on earned income through the NI charge could disproportionately affect smaller landlords, potentially undermining their profitability. Concurrent discussions about limiting tax-free gifting and freezing inheritance tax thresholds add to landlords’ unease, with possible impediments for parents assisting children or relatives onto the property ladder. He advises landlords to undertake proactive succession planning involving company structures or phased property transfers to mitigate these risks.

Despite these headwinds, profitability in buy-to-let remains relatively robust. Pegasus Insight’s earlier Q2 2025 data showed that average rental yields have rebounded to a decade-high level of 6.5%, with regions like the North West, North East, and East Midlands outperforming London, which records lower yields at approximately 6.1%. Most landlords (87%) report making a profit, with a significant portion describing their returns as ‘large’ or ‘small’ profits, underscoring the underlying resilience of the buy-to-let market.

Nonetheless, the sector’s outlook remains clouded by uncertainty. Further supporting this apprehension, separate research indicates that almost 40% of landlords are contemplating exiting the buy-to-let market within the next five years. This trend, coupled with reduced willingness to acquire new properties, threatens to aggravate the shortage of rental homes at a time when tenant demand is high.

As the Government prepares to unveil its Budget, landlords and industry experts alike urge careful consideration of the long-term consequences of tax reforms. While acknowledging the potential opportunities arising from evolving market dynamics, many warn that additional fiscal burdens could accelerate portfolio shrinkage, diminish rental supply, and ultimately jeopardise housing stability for tenants across the UK.

In summary, the UK buy-to-let sector stands at a critical crossroads. With taxation policy reforms looming, many landlords are reassessing their investment strategies amid fears that the sector’s sustainability is under threat. How the government balances revenue generation against preserving the health of the private rental market will be closely watched in the coming weeks and beyond.