Rachel Reeves has been urged to hand landlords a tax break in the Budget to ease record rental price growth.

It comes as many buy-to-let investors sell up in the face of increased regulation and a potential capital gains tax raid in Labour’s first major fiscal statement this month.

Data from property site Rightmove has revealed the smaller size of the rental market is increasing demand and driving prices to record levels.

It showed those looking to rent in London now face paying £2,694 per month on average, up 2.5pc on last year’s figures. The figure marks a record for the capital.

In the rest of the country, advertised rents have also hit a record of £1,344 per month, an increase of 5.2pc from last year.

Despite a modest 13pc improvement in the number of available rental properties from last year, there are still more than a quarter fewer rental homes on the market than in 2019.

The Chancellor should hand out more tax relief to landlords in the Budget on October 30 to incentivise investment in rental property and stabilise demand, Rightmove said.

Tim Bannister, a Rightmove property expert, said: “We are seeing some landlords choosing to exit the market with potential tax changes and stricter EPC regulations as additional factors in landlords’ decision-making.

“With rental supply under strain, incentivising landlords to invest in energy-efficient upgrades or offering tax relief could help maintain rental supply and, ultimately, ease affordability pressures for tenants.

Britain’s property market boomed for years thanks to the introduction of buy-to-let mortgages in the late 1990s, but the gradual erosion of associated tax benefits under the previous Conservative government has caused many landlords to sell up.

Rightmove figures show that 18pc of homes currently on the market are former rental properties, compared with just 8pc in 2010.

The prospect of a new tranche of regulation in the Renters’ Rights Bill, adding new requirements on landlords to make expensive energy efficiency improvements to housing, has further spooked investors.

Lynda Woodcock, of estate Oxfordshire-based agents Pheasant Retreats, said: “The rental market has been incredibly busy, but that’s largely due to the ongoing shortage of available properties.

“With so many landlords considering selling their properties ahead of new legislation, such as the proposed changes around EPC requirements and tax increases, we’re seeing fewer new instructions coming through.”

Nathan Emerson, of letting agency trade body Propertymark, said: “Landlords have faced continuous financial and regulatory hurdles with many having to pass on certain costs by raising rents just to break even on their increasing expenditure.

“As the Renters’ Rights Bill makes its way through Parliament there is a danger it may not actually benefit all tenants and it’s important that full impact assessments are conducted.

“The UK Government is right in pursuing reform within the sector to ensure higher standards; however, for this to work, there needs to be a balanced approach to protect both landlords and tenants equally.”