Rental round-up: Mixed message on whether rents will rise

20 February 2017
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Tenants could see rent go up faster than house price growth over the next five years, according to a new survey.

The Royal Institution of Chartered Surveyors’ (RICS) UK Residential Market Survey for January predicts that rents are set to go up by just over 25% over the next five years, while house prices will rise by just under 20%.

Surveyors - who were polled just after the Housing White Paper - report a shortage of supply in the lettings market, with landlords expected to cut the number of properties they own over the next 12 months in response to last April’s additional stamp duty on second homes and cuts to mortgage interest relief.

RICS also reports that during the three months to January, tenant demand for rental properties continued to increase, with the imbalance between supply and demand pushing rents up. Two exceptions to this are London and Scotland, where RICS reports a slight reduction in demand for properties to rent, leading to rents remaining fairly flat.

Jonathan Stephens, managing director of property consultancy Surrenden Invest, says: “The RICS findings bring to light the impact the latest changes to second home legislation have had on the UK’s rental market. The increase in second home stamp duty has noticeably deterred investment as the report emphasises the absence of new listings coming on to the lettings market.

“Analysis undertaken by accountancy firm PwC last year suggested that by 2025 there will be 7.2 million households living in rented accommodation, an increase of approximately 33% when compared to the 5.4 million in 2015. If the rising demand continues on such a steep trajectory, then the shortage of rental properties will only intensify unless something is done to encourage investment in the sector.”

Rents are fairly static

In contrast, the HomeLet Rental Index, which provides data on new tenancies in the UK, reports a much more promising picture for tenants when it comes to future affordability in the private rental sector. It says that UK rents are just 0.7% higher in January than a year ago – and down from a peak of 4.7% seven months ago.

 

It suggests that at the current rate of growth, average UK rents could begin to fall over the next few months.

Its data reveals that rents fell in six out of 12 regions of the UK during January, with the biggest drop in the South East, where rents have actually gone down by 0.6%, compared to a 7.1% rise in July 2016. 

Tenants in Greater London have seen rents rise by only 0.4% over the year to January 2016, compared to a 4% rise in June.

Martin Totty, chief executive of HomeLet, says: “Our data has been showing for some time that landlords do not feel able to raise rents on new tenancies at anything like the pace seen during 2015 and the first half of 2016. Now it is even possible that rents will begin falling, which would be unprecedented in recent times.

“Landlords and letting agents have clearly recognised concerns about the affordability of rising rents and are now being cautious about what they expect tenants to pay. However, with many landlords facing increasing costs in the months ahead, as the government begins to cut back on mortgage interest tax relief, the sector faces a difficult balancing act.

“It remains to be seen if landlords feeling the pressure of tougher tax and regulation will be able to recoup these higher costs, as many in the industry had assumed,” he adds.

Slow down in rental growth

While not as positive for tenants as Rightmove’s data, the Office for National Statistics (ONS) also reports a slowing down in rental growth, with a 2.2% increase in the 12 months to January 2017 – down by 0.1% on December’s figure.

The ONS’ Index of Private Housing Rental Prices found that in England, private rental prices grew by 2.3%, while Wales and Scotland saw growth of 0.4% and 0.1% respectively.

Londoners also saw rents rise by just 2.1%, compared with 2.4% in December.

Your Move’s Buy to Let index for England and Wales for December 2016 was broadly similar, with prices up annually by 2.2%. Average rent was £811 in England and Wales during December, while London rents ended 2016 at £1,291 - just £10 more than a year ago.

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