An online lettings agency says tenants’ arrears are likely to be the biggest issue facing the rental sector next year unless the government scraps its proposed tax changes for landlords.

Despite the proportion of tenants in arrears having improved since the last recession, the agency – Upad – claims it is witnessing the problem grow again.

The agency says research from Savills, LSL Property Services and the Ministry of Justice suggest that almost 10 per cent of tenants fell behind with rent in August while 34,000 landlords issued possession claims between July and September.

Rent increases triggered by tax increases will exacerbate the problem, the agency claims.

“Increased landlord costs will only make matters worse, especially for tenants who in some of the most expensive areas, such as our capital, are paying up to two thirds of their salary on rent” claims agency chief executive James Davis.

“Over-stretched landlords will try to recoup these additional taxes by increasing rents, but if wages struggle to increase more than inflation, landlords will struggle to secure rises, putting the entire lettings financial model at risk” he claims.

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