"Almost overnight, the market tilted away from investors, meaning far fewer homes have been added to the rented sector and more have found their way into owner-occupation over the last decade"
- Aneisha Beveridge - Hamptons
Ten years after the second home stamp duty surcharge was introduced, the private rented sector in Great Britain is estimated to be missing around 2.2 million rental homes.
The tax, first implemented in April 2016 for additional property purchases in England and Scotland, increased the cost of buying investment properties and marked a major shift in the treatment of landlords compared with owner-occupiers.
Analysis by Hamptons suggests the policy has significantly slowed the expansion of the rental market. If the sector had continued growing at its pre-2016 rate, around 7.4 million households would now rent privately. Instead, the figure stands at roughly 5.2 million households across Great Britain.
For landlords and property investors, the findings highlight how tax changes over the past decade have reshaped UK property investment and the wider rental market.
How the second home stamp duty surcharge changed property investment
The second home stamp duty surcharge was originally introduced as a 3% additional charge on top of standard stamp duty rates in England. The policy was later expanded.
Current surcharge rates include:
5% in England after the October 2024 increase
5% in Wales
8% in Scotland
The extra tax has significantly increased the upfront cost of purchasing a buy-to-let property.
For example, a £350,000 buy-to-let purchase in England now attracts a £25,000 stamp duty bill for an investor. By comparison:
A home mover pays around £7,500
A first-time buyer pays roughly £2,500
Despite accounting for a smaller share of overall purchases, investors still contribute heavily to tax receipts. By the 2024/25 tax year, surcharge payers generated 48% of all residential stamp duty revenue.
Rental supply falls as landlord purchases decline
The introduction of the second home stamp duty surcharge coincided with a sharp decline in landlord buying activity.
In the 12 months before April 2016, investors rushed to complete purchases before the tax took effect. Landlords accounted for 16.5% of transactions, above the previous five-year average of 14.5%.
Over the following decade, investor participation fell sharply:
Average share of purchases by landlords dropped to 11.8%
Investor purchases have fallen to 10.8% so far in 2026
Higher taxation, combined with stricter regulation and shifting demographics, has contributed to a reduction in available rental properties. Data suggests there were 25.4% fewer homes available to rent in February 2026 than in February 2016.
This decline has implications beyond tenants. Investor demand historically helped support housebuilding by enabling developers to sell properties off-plan and secure early funding for schemes.
Rents outpace inflation amid tighter supply
The shrinking supply of rental homes has coincided with rising rents across Great Britain.
Since the second home stamp duty surcharge was introduced:
Rents have increased 44.1%
CPI inflation rose 39.9% over the same period
Average rents have grown by 4.0% per year, compared with 3.0% annually during the five years before the surcharge. This suggests the policy has contributed roughly 1% to annual rental growth, equivalent to around £70 per month for tenants.
Rental supply pressures are particularly acute in London. The number of available rental homes in the capital has fallen 42.4% over the past decade, with Outer London supply down 50.7%.
First-time buyers face less competition from landlords
While the second home stamp duty surcharge has constrained rental supply, it has helped first-time buyers compete more effectively in the housing market.
In the year before the surcharge took effect, 26% of first-time buyers faced competition from landlords when submitting an offer. That figure has now fallen to 19%.
The shift is most visible in southern England, including London and the South East, where investor activity has declined the most.
However, the trend differs in more affordable regions. Investors have increasingly targeted areas offering higher rental yields and lower property prices, including:
North West England
Yorkshire and the Humber
Scotland
Wales
Higher tax bills have also altered investor bidding behaviour. A decade ago, the average landlord offer was 0.8% below the typical first-time buyer bid. Today, investors bid 2.0% below first-time buyers on average as they attempt to maintain viable returns.
Missing homes also linked to slower housebuilding
Of the 2.2 million “missing” rental homes, around 1.4 million properties are now occupied by owner-occupiers. This broadly aligns with official data showing growth in homeownership during the past decade.
However, the remaining 800,000 homes were never built.
Historically, landlords played an important role in funding development by purchasing new-build flats well before construction finished. With fewer investors active in the market, developers often face slower sales rates and greater financial risk.
This has been particularly evident in the city centre apartment sector, where investor demand was once a key driver of development.
Rental growth returns after a slowdown
After several months of falling rents in 2025, rental growth has begun to recover.
Across Great Britain:
Newly agreed rents increased 0.6% year on year to £1,368 per month
This ended a seven-month period of annual declines
London has recently led the recovery. Rents in the capital rose 1.0% annually, driven by Inner London growth of 2.6%.
This marks the first time in 27 months that rental growth in London has exceeded the rest of the country.
Meanwhile, rents for tenants renewing contracts increased 2.2% year on year, the slowest rate since September 2021. Over the past five years, however, renewal rents have risen 24.7%.
What this means for landlords and the UK rental market
The long-term impact of the second home stamp duty surcharge continues to shape the UK property market and the economics of buy-to-let investment.
For landlords, investors and lenders, several structural trends have emerged:
Higher taxes have reduced investor participation in property purchases
Rental supply has tightened significantly, pushing rents higher
Investor demand for new-build homes has weakened, affecting development pipelines
First-time buyers now face less competition from landlords
Aneisha Beveridge, head of research at Hamptons, said, “Higher rates of stamp duty for anyone buying a second home have broadly delivered what the government of the day set out to achieve. Almost overnight, the market tilted away from investors, meaning far fewer homes have been added to the rented sector and more have found their way into owner-occupation over the last decade."
“However, large stamp duty bills have also brought side effects, particularly as the wider tax and regulatory environment for landlords has tightened. Tenants who can’t afford to buy, or don’t want to, have seen rents rise faster than inflation, while those on the margins of the market have found it increasingly difficult to find somewhere to rent in the first place."
“Domestic and international landlords were once some of the biggest buyers of city centre flats. Prior to 2016, housebuilders often had waiting lists of investors, sometimes years before they even put a spade in the ground. Their partial withdrawal has reduced viability and slowed the pace of housebuilding, particularly in the new-build apartment sector, where sales are now taking longer and often completing at lower prices."
“With D-Day for the Renters’ Rights Act now less than 50 days away, rental growth has started to creep up. But awareness of the many upcoming changes remains relatively low among landlords, and so far, there have been few signs that landlords are looking to push up rents specifically ahead of 1 May. Whether the Renters’ Rights Act proves to be inflationary for rents will ultimately depend on how well it works in practise for landlords.”
With further regulatory changes approaching, including the implementation of the Renters’ Rights Act, investors and landlords will be watching closely to see how policy changes continue to influence rental supply and affordability in the years ahead.
