Rental round-up: Demand for London cools

25 January 2017

For the fifth month running, private rental prices paid by tenants in Great Britain (excluding London) rose by 2.3% in the 12 months to December 2016, according to latest Office for National Statistics (ONS) data.

This means that a property that was rented for £500 a month in December 2015 cost tenants £511.50 in December 2016.

The ONS’ Index of Private Housing Rental Prices also found that in England, private rental prices grew by 2.5%, while Wales and Scotland saw growth of 0.3% and 0.1% respectively.

All English regions saw growth in private rental prices over the same period, with the South and East outperforming the North.


Demand for rentals in London cools

Showing signs of a cooling of demand for properties in the capital, the annual growth rate for London was 2.4% in December – only 0.1 percentage points above that of Great Britain as a whole.

The Royal Institution of Chartered Surveyors’ (RICS) UK Residential Market Survey for December backs up the ONS data. It confirms that feedback from its surveyors on the lettings market has shown that demand to rent properties in London has continued to fall for the fourth month in a row. This is good news for would-be tenants in the capital who can try to negotiate a better deal.

While RICS reports that the outlook over 12 months is fairly flat, it suggests that demand for places to rent will strengthen in London over five years – albeit at a slower rate than the rest of the UK.

Meanwhile, property portal Rightmove forecasts that rents will rise by 4% outside London in 2017, reporting that asking rents went up by 3% in 2016 with the highest growth in Yorkshire and the North West. It, too, reports a more negative picture in London, with UK rents falling by 4.4% over the year – with a 5.2% drop in inner London.

If buy-to-let investors are looking for new hotspots, Rightmove reports that Swansea is the go-to town, reporting an 11.4% annual rental growth in 2016. This is followed by Gillingham in Kent (11.1%) and Bath (10.5%).

The portal reveals that tenants are heading up north to find more affordable rent, with demand highest in Greater Manchester and Stockport in Cheshire.


Outlook is rosier in the North West

Rightmove suggests buy-to-let investors focus on Merseyside and Lancashire where rental yields could rise above 7% a year for homes suitable for young professionals and families.
Sam Mitchell, head of lettings at Rightmove, says: “Investors looking for the strongest yields could consider investing in certain areas in the North West where both demand and yields are high.

“Those with a number of properties in the capital may find that tenants are more price-sensitive, so setting realistic rent levels will be the key to avoiding void periods. In order to mitigate this, we would recommend landlords asking for longer tenancies to help secure a steady rental income over the next few years while they adjust to what the tax changes will mean for them,” he adds.


Rent inflation still higher than general inflation

The HomeLet Rental Index, which provides data on new tenancies in the UK, reports the average rent for a new tenancy starting in December 2016 was £892 a month, compared to £877 in December 2015.

In Greater London, rents rose from £1,478 to £1,508 over the year to December 2016 – a smaller percentage increase.

It points out that rental price inflation is still higher than general inflation as measured by the consumer price index (CPI), but it reports a slowing down as 2016 came to a close.

By December 2016, UK rents were just 1.7% higher than a year earlier, compared with annual price inflation of 4.7% in June 2016.

This end-of-year slowdown was more marked in Greater London, where annual rental price growth was up 2% in December, compared with 6.8% at the mid-year point.

According to HomeLet, rent accounted for an average of 28% of tenants’ household income before tax, compared with 31% in London.

Martin Totty, HomeLet’s chief executive officer, says: “While demand for rental property remains strong, landlords always have to be mindful of tenants’ ability to pay higher prices.

The data recorded by the HomeLet Rental Index during the second half of last year suggests we have now begun to approach an affordability ceiling, particularly in areas of the country where rental price inflation was previously highest.”

“While the industry has speculated that landlords will increase rents to mitigate the impact of factors such as the impending reductions in mortgage interest tax relief, this may prove problematic given the pricing trends we’re currently seeing in the market and the potential for higher inflation and a squeeze on real earnings in 2017,” he adds.

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