The proportion of landlords who intend to sell their rental properties as a result of the government’s draconian tax changes has declined, owed in part to higher demand from tenants seeking accommodation in the private rented sector.

A new survey of private landlords has found that 17% are planning to sell, down from 25% a year ago, following the government’s plans to remove the ability to deduct mortgage interest costs from rental income before calculating the tax bill.

The hardest-hit landlords will be those paying higher rates of tax of 40% or 45% and who have large mortgages.

Instead of being able to deduct mortgage costs, landlords will have a 20% tax credit, which will leave many higher-rate taxpayers with squeezed profits and some making a loss after the change is phased in from April.

The study, by Paragon Mortgages, suggests that more landlords are now willing to develop a ‘hold strategy’ after developing fresh ways to manage the impact of the changes, while the proportion of landlords willing to purchase buy-to-let property in Q1 2017 has grown to 13%, up from a record low of 9% 12 months ago.

Another attractive factor for landlords is the fact that tenant demand for private rented accommodation is continuing to increase, with 94% of the landlords interviewed describing tenant demand as stable or growing, with fewer than one in 30 suggesting a decline.

High tenant demand also continues to impact average void periods, which remain unchanged at 2.7 weeks, with 48% of respondents reporting that their properties stand empty for less than two weeks. Average yields also remained remarkably stable at 6.1%.

John Heron, managing director at Paragon Mortgages, said: “With no material improvement in the supply of new housing against a background of strong population growth and household formation, it is no surprise that landlords are continuing to experience strong rental demand. It is promising therefore that there has been some improvement in landlord buying intentions albeit from a low base.

“Any boost this gives to improving supply to the sector, however, needs to be balanced against the additional upward pressure that we are likely to see in rents as a result of the phased impact of the changes to the taxation of rental income.”