Tax relief changes coupled with rent controls could trigger the next property crash.
The warning has come from Gary Heynes, a partner at tax and business advice firm RSM.
He says that as tax relief changes are increasingly phased in, landlords could find themselves paying more in tax than the net rental income they receive.
If they cannot put up rents to cover the shortfall, he says there will be a huge influx of properties on to the market.
The amount of tax relief landlords can claim on residential property is already being cut.
From April 6 this year, tax relief for finance costs is being restricted, with the full restriction phased in over a period of four years.
This tax year 25% of landlords’ interest costs will get tax relief at the basic rate of 20%. In the next tax year that will be 50% of their interest costs and by 2020/21 all interest costs will only get tax relief at the basic rate.
Heynes said that someone with a £600,000 property, paying an interest-only mortgage, could find that in future, what is now a 4% annual return on investment would be replaced by a cost of £1,700 to run the property.
Heynes said: “Margins are getting tighter for landlords. Add to this a possible increase in interest rates and the issue is exacerbated.”
Heynes said many landlords will simply put rents up in order to cover the shortfall.
“However, if a Labour government is elected, rent controls are almost certain to follow, so increasing rents might not be possible.
“Higher interest rates coupled with rent controls would not be a great environment for personal landlords and could instigate ‘the great sell-off’ as landlords look to reinvest elsewhere.
“This response could cause the next property crash as the property market becomes over-supplied with assets to sell, pulling house prices down, impacting equity levels and mortgage agreements.”