Rental roundup: rents set to rise by 15% by 2023, while more landlords switch to company set-up

Published by Hannah Nemeth on 09 August 2018.
Last updated on 09 August 2018

Renting

A supply shortage could push up rents up by 15% over the next five years, according to the Royal Institution of Chartered Surveyors (RICS).

RICS’ UK Residential Market Survey for July reports a continued drop in the number of new properties coming on to the market – the eighth consecutive quarter in which property numbers have dwindled.

It suggests that the dearth of properties on the market is a sign of the growing number of smaller-scale landlords exiting the rental market due to tougher tax rules.

With tenant demand remaining strong, this had led to rising rents for tenants, with rents predicted to go up by just under 2% over the next 12 months and by up to 15% by 2023.

Key stats at a glance: 

  • ARLA Propertymark June Private Rented Sector Report – 35% of tenants experienced rent rises
  • Hamptons International Monthly Lettings Index – the number of rental properties owned by companies rose by 18% in first half of 2018
  • HomeLet Rental Index – UK rents up by 1.3% over the year to July 2018
  • Office for National Statistics (ONS) June Index of Private Housing Rental Prices – Private rents went up by 1% since May
  • Rightmove Quarterly Rental Trends Tracker – asking rents up by 0.7% nationally over the year and by 3.4% in London
  • Your Move England & Wales Rental Tracker June report – small fall in London rents, but strong performance elsewhere

Commenting on the latest survey, Simon Rubinsohn, RICS chief economist, says: “The impact of recent and ongoing tax changes is clearly having a material impact on the buy-to-let sector as intended. The risk, as we have highlighted previously, is that a reduced pipeline of supply will gradually feed through into higher rents in the absence of either a significant uplift in the Build to Rent programme or government-funded social housing.

“At the present time, there is little evidence that either is likely to make up the shortfall. This augurs ill for those many households for whom owner occupation is either out of reach financially or just not a suitable tenure.”

Adam Male, director of lettings at Urban.co.uk, adds: “This notable reduction in the lettings market is a direct consequence of successive chancellors keeping their foot on the throat of buy-to-let landlords, through the implementation of initiatives like the increase to stamp duty thresholds & section 24.

“As expected, this suppression of the buy-to-let sector has only resulted in rents climbing ever higher at the expense of the nation’s landlords and tenants.

“It’s time the government started working with the UK’s landlords rather than against them. They must loosen their current stranglehold and find a solution that is beneficial for both sides of the lettings coin.”

Number of company-owned lets hits new high

The number of rental properties owned by a company rather than an individual went up by 18% in the first half of 2018, according to Hamptons International Monthly Lettings Index for June. This is up 4% compared to the same period in 2017 and 8% higher than in the first half of 2016.

The number of company-owned rentals has been steadily rising since the Chancellor announced changes to tax relief on rental properties in the 2015 Budget as some landlords have moved their buy-to-let portfolios into a company in a bid to reduce their tax bill.

Hamptons reports that company landlords are more likely to rent out cheaper homes than individuals.  Over a third (35%) of homes let by a company landlord cost under £500 a calendar month, compared to 19% of homes let by individuals.

Aneisha Beveridge, analyst at Hamptons International, says: “Nearly one in five homes let so far this year were owned by a company landlord, almost double the proportion in 2015, before the tapering of mortgage interest tax relief changes were announced.  Companies are generally taxed more favourably, so in many cases landlords can make cash savings by operating through a company rather than as an individual.”

Rising rents hit 10-month high

The number of rental properties managed by letting agents increased by 3% in June over the previous month, according to the Association of Rental Letting Agents (ARLA). 

But an increase in the number of rental properties on the market for tenants to view was not enough to stop rents from continuing to rise. In June, 35% of tenants saw their rents go up, compared with 28% in May – it’s also the highest rise since August 2017.

Meanwhile, the number of tenants searching for a new home went up by 18%, with 71 per branch, compared to 60 in May.

David Cox, chief executive of ARLA, says: “It’s positive to see the number of properties available to rent slowly rising but it still isn’t anywhere near enough to slow down the pace of rent rises, which are continuing to climb.  

“Over the past few years, we’ve seen taxes to both purchase and let a rental property increase. This combination – coupled with continued regulatory change – has unsurprisingly started pushing landlords out of the market. We predicted back at the end of last year that renters would be in for a rough ride in 2018, and we warned government about the impact on the market. Our fears are now being realised and renters are suffering as a result.”

Mixed reports on London rents

July figures from HomeLet’s rental index reveal the average rent in the UK is now £937 – up by 1.3% in 12 months – and that average rents in Greater London have gone up by 3.3% over the year, with a tenant typically paying £1,615 a calendar month. When London is excluded, the average rent in the UK is now £777, up by 1% on last year.

Nine out of 12 regions saw rents rise in July, with only Scotland, the North East and the East of England witnessing rents fall over the month from June. Northern Ireland had the biggest increase in rents over the year – at a 4.5% increase in average rental prices. While since June, the South East has seen the biggest increase – at 2.6%.

Meanwhile, figures from the Office for National Statistics for June 2018 (the latest available) show that private rental prices paid by tenants in Great Britain rose by 1% over 12 months, remaining unchanged since April.

This means that a property that was rented for £500 a month in June 2017, which saw its rent increase by the average rate in Great Britain, would be rented for £505 in June 2018.

The ONS says this slowdown in the growth in private rental prices in Great Britain is driven mainly by a slowdown in London over the same period. The growth rate for London in the 12 months to June 2018 was -0.2%.

London has seen a small drop of 0.5% in rents over the 12 months to June, while the South West has had the strongest growth at 3.4% over the year, according to the Your Move Rental Tracker.

Across all regions, the average rent now stands at £861 a calendar month, while in London the index reports a monthly figure of £1,271.

Looking at asking prices for rental properties just coming on the market, Rightmove’s rental trends tracker reports a lack of properties coming to the market in London in the second quarter of this year (down 3.5% on the same period in 2017).

Rightmove says this has pushed asking rents for London up by 3.4% over the year – the highest rate for three years – as compared to just 0.7% nationally.

Nationally, asking rents rose by 2.7% over the quarter, but with an annual rate of just 0.7%, as a result of no changes in rents in the South West and a drop of -0.4% in the South East.

Nationally on average, it takes a letting agent 36 days from the time a rental property goes on Rightmove until a let is agreed.

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i like good tenants that stay

i like good tenants that stay a long time, but with these 3 yr tenancies the only to evict a bad tenant is going to be section 8 which is slow and expensive.