Londoners look elsewhere for cheaper rent

24 October 2017
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Rents have continued to go up in September, but at a fairly slow pace. Increases range from 1.1% to 2.1%, depending on which rental tracker you follow.

However, one trend that all the indices agree on is that rents are continuing to rise at a slower pace in London.

Rightmove reports that landlords are exiting London for better yields in the South East. With more stock on the market, tenants have been able to negotiate cheaper rents.

Meanwhile, Countrywide reports that both tenants and agents are leaving London to head north to the Midlands and beyond.

Key stats at a glance:          

  • Countrywide Monthly Lettings Index – rents up by 1.1% over the year to September.
  • HomeLet Rental Index – UK rents up by 2.1% over the year to September 2017. 
  • Office for National Statistics (ONS) Index of Private Housing Rental Prices for September – UK rents up by 1.6% to September 2017.
  • Rightmove Rental Trends Tracker (Q3) – Rents up annually by 1.2% but down by -0.2% between the second and third quarter of 2017.
  • Royal Institute of Chartered Surveyors (RICS) September 2017 Residential Market Survey – predicts that rents will go up by around 2% over the next 12 months.

Rents rise for most tenants

HomeLet’s September Rental Index reveals that rents in the UK went up by just 2.1% in September compared to a year ago, with the average monthly rent at £927. This compares with an average rent of £908 a year ago.

In London, rents went up by 1.9% over the same period with the average rent now at £1,593.

The average rent in the UK is £776 if London is excluded from the data – up by 2.3% on last year.

HomeLet reports that rents went up over the year in 11 out of the 12 regions it covers, with the exception being the South East.

Tenants in Northern Ireland suffered the biggest increases, with rents up by 4.3% over the year, followed by the West Midlands (3.9%) and East Midlands (3.7%).

Martin Totty, HomeLet’s chief executive, believes that rents may go up as buy-to-let landlords seek to claw back the extra costs they now face.

He says: “While it is perhaps too early to conclude, this data signals the re-emergence of an upward trend in rents. It wouldn't be surprising if landlords, seeing their own current and anticipated cost increases, seek to pass these costs on to tenants to preserve the returns from capital they have invested in residential property assets.

“Landlords are facing a deluge of higher costs from new regulation, taxation changes on buy-to-let mortgages and the prospect of a near-term rise in interest rates. There’s also the added uncertainty over the fallout from the government's intention to ban letting agents from charging upfront fees to tenants.

“In a sector where demand for rental properties generally outstrips supply, most informed commentators suggest higher externally imposed costs on landlords will inevitably translate into higher rents to tenants. This may prove to be the start of that upward movement, especially if tenants are left competing for fewer rental properties because some landlords decide the returns from property investment are being eroded by factors beyond their control.”

Rents ‘soften’ in the South East

Rightmove’s Rental Trends Tracker paints a similar picture when it comes to rents stalling in the South East.

While asking rents went up annually by 1.2%, Rightmove reports that asking rents went down by 0.2% in the third quarter of 2017, with the average monthly asking rent now £789. It says that this quarterly drop is driven by asking rents being down by 2.3% in the South East and down annually by -1.9% – the first time the region has seen asking rent fall in six years.

Rightmove reports that landlords with properties listed on its site are taking 8% longer to find a tenant outside London and 5% longer in London than in the same period in 2016.

Sam Mitchell, head of lettings at Rightmove, says the South East has seen an influx of property investors looking for better returns than they can find in London and with more properties available to rent, prices have come down.

He explains: “Since last April’s second home stamp duty changes came in, the supply of new rental properties in the South East has been steadily increasing – up 5.5% on this time last year. Agents are reporting that some investors looking for better yields are shifting their focus from London to the surrounding counties of Surrey, Berkshire and Buckinghamshire. The increase in stock in the South East has led to softening in rents in some areas where there is less competition among tenants, but they are holding up in key commuter areas where tenant demand is strong.”

Asking rents in London have continued to fall this month and now average £1,920. New listings are down 3.7% in London compared with the same period last year – the only region in the South to see a drop in new supply.

Mr Mitchell adds “Last year, the supply of rental properties in London increased as much as 26% when investors rushed to buy ahead of the stamp duty changes, leading to cooling rents over the last 12 months in the capital.

“Now it appears that rental investors are starting to move their money away from London, with a number of agents across London saying that investors are being replaced by first-time buyers. This is likely to constrict rental supply in the capital and lead to rents increasing again, so now would be a good time for prospective tenants to act, before this happens.”

Exodus from London

Countrywide reports that rents have risen nationwide by 1.1%, with an average monthly rent of £965 – up from £954 in September 2016.

London was the only region where rents didn’t go up over the year - remaining static at 0%, with the average monthly rent at £1,712.

The top-performing region was the South West, where rents went up by 3.3%.

Countrywide reveals that over the past 12 months 64,672 tenants left London – the highest number since 2007. More than three-quarters (78%) left to rent another home outside London with the remaining 22% buying a home.

It also reveals that tenants leaving London to rent tend to move twice the distance as those leaving to buy – 101 miles compared to 53. As a result, there is a growing trend for tenants to move to the Midlands or the North. Over the past year, 48% of tenants leaving London to rent somewhere else headed north compared to 31% in 2007.

Johnny Morris, research director at Countrywide, says: “For people in their 30s, leaving London is something of a rite of passage. But as the number of those renting has grown, the move out of London is increasingly likely to be in the rental market. A decade ago, most tenants moving out of the capital did so to buy. But, since 2007, leaving London to carry on renting somewhere else has become more typical.”

Rents remain static, says ONS

The ONS Index of private housing rental prices in Great Britain for September 2017 reports that rents went up annually by 1.6% over the year – the same as in August. This means a property that was rented for £500 a month in September 2016, would, on average, be rented for £508 a year later.

In England, private rental prices grew by 1.6% compared with 1.4% in Wales, which has increased its annual rental growth rate since July 2016. Meanwhile, rental growth in Scotland increased by 0.3% annually – its highest rate since May 2016.

In London, rents continue to go up at a slower level than the rest of the UK, rising by just 0.9% since September 2016.

The ONS reports that between January 2011 and September 2017, private rental prices in Great Britain went up by 15.2%. It says that this was strongly driven by the historical growth in private rental prices in London. When London is excluded, private rental prices increased by 11.3% over the same period.

However, it adds that there have been signs of a slowdown since the end of 2015 – driven by falling rents in London.

The Royal Institute of Chartered Surveyors (RICS) Residential Market Survey reports that interest from prospective tenants edged up in September, with 10% more surveyors and property professionals polled noting a rise, rather than a fall, in demand.

It reports that there has been a drop in landlords putting their rental properties on the market, with the number of properties being listed for rent remaining static over the past 14 months.

Over the next 12 months, those polled are anticipating a rise of around 2% in rents across the UK. However, participants in London believe that rents in the capital will come down further over the year ahead.

METHODOLOGY

Countrywide Lettings Index - Rent and rental growth figures for each month are based on a three-month rolling average rather than lets agreed in the past month.The index is based on the 90,000 homes let and managed by Countrywide in each year, adjusting for their location and type. It is based on achieved rather than advertised rents and the published monthly rental figures are an average of the new lets and renewals of tenancies over a rolling three-month period.

HomeLet Rental Index - Provides data on new tenancies in the UK. As part of referencing prospective tenants each year, HomeLet processes information including the rental amounts agreed, the number of tenants moving into the property, together with the employment status, income and age of all tenants.

ONS Index of Private Housing Rental Prices - An experimental price index tracking the prices paid for renting property from private landlords in Great Britain.

RICS Residential Market Survey - A monthly sentiment survey of chartered surveyors who operate in the residential sales and lettings markets. This survey sample covers 310 responses coming from 571 branches.

Rightmove Rental Trends Tracker - This index is compiled from the asking rents of properties coming on to the market on Rightmove.co.uk. Rightmove measured 367,248 asking rents for properties advertised on the portal by agents in the third quarter of 2017. This month 16,096 properties have been excluded due to being anomalies. 

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