Rent prices will rise as demand for a limited amount of rental homes increases if ministers hit landlords with more taxes in the Budget, a leading buy-to-let lender has warned.

Nigel Terrington, head of £1.4billion Paragon Bank, also criticised councils that let rogue landlords flout rules while those who follow them are punished.

‘The Government may be pursuing a policy of not upsetting its more Left-wing backbenchers, and landlords are always a target,’ he said. 

‘But further legislation or tax changes risk a situation where there will not be the landlords to provide homes.’

From April, higher rates of income tax of 22 to 47 per cent will apply on rental income – the latest reform to hit the sector.

About 93,000 landlords quit last year, with a further exodus forecast for this year. 

Terrington said private landlords are the major provider of rented accommodation, since social housing now makes up just 8 per cent of housing stock – against 33 per cent in 1980 when the Right to Buy scheme allowed tenants to buy their council homes.

Some 4.7million households rely on the private-rented sector, but Terrington expected this to grow as interest rates and mortgage rates rise. 

The Bank of England held the base rate at 3.75 per cent last week, but hinted that higher borrowing costs are on the way.

‘We’re expecting four base rate rises by the end of 2027,’ he said.

‘This means that more people who can’t afford to buy will be seeking a rental home.’

Rents are already rising faster than inflation. The Office for National Statistics found they jumped 3.8 per cent to average £1,400 a month in the year to August, with the average in London now £2,332 a month.

The leap is partly blamed on the introduction of the Renters’ Rights Act in May, which bans no-fault evictions and lets tenants give two months’ notice.

Tom Bill, head of residential research at estate agent Knight Frank, said landlords were setting higher rents to reflect the greater risks they face because of more potential void periods for rent collection.