Rents start to slow - with London feeling the pinch
Rents in the UK were fairly static or started to fall during February, according to the main industry polls, with landlords hesitating to raise rents because of fears that tenants won’t find them affordable.
The Office for National Statistics’ Index of private housing rental prices (IPHRP) in Great Britain: Feb 2017 suggests that rents are still on the way up. It reports that private rents rose by 2.1% in the 12 months to February 2017 – down just 0.1% from January 2017. This means that a property rented for £500 a month in February 2016 would typically cost £510.50 a month to rent a year later.
While rents went up by 2.3% in England, the IPHRP says they were up by just 0.5% in Wales and were static in Scotland. London rents went up by 1.9% during the same period.
The index also reports rents in the South and East of England rising at a faster pace than in the North – with tenants in the South East seeing rental price hikes of 3.3% over the year to February 2017.
By contrast, the Royal Institution of Chartered Surveyors’ (RICS) UK Residential Market Survey for February reveals that demand rose for the third consecutive month, but that new landlord instructions had started to weaken as changes to mortgage interest tax relief start to take affect.
Over the next 12 months, RICS members forecast rents to rise by 2.7%. They also predict that rental growth will accelerate to average 4.4% a year over the next five years. However, surveyors did report a weak demand for rentals and no growth over the short term in London.
Landlords stall on rent rises
Meanwhile, the HomeLet Rental Index for February, which provides data on new tenancies in the UK, offers better news for tenants. It reports that UK rents are now rising well below the general rate of inflation.
Rents were just 0.8% higher than in February 2016, while inflation was running at 1.8%. As recently as June 2016, HomeLet reported that rents were rising by 4.7%.
It reported that in London rents were almost static – up by 0.4% on February 2016’s figures, while in the South East rents dropped by 0.2%. Rents remained unchanged when compared with February 2016 in the North East and South West.
HomeLet’s annual survey of 3,726 landlords revealed a split between those who believe they will have to increase rents to cope with new tax liabilities and those who are more concerned that their rents remain affordable – 48.5% of landlords had no plans to raise rents. Of the 51.5% who do plan to increase rents, almost a third (29%) plan to put off any increase until 2018.
Fewer rent hikes in London
ARLA Propertymark’s February private rental sector report for February reported a rise in overall rental stock over the past year – the number of rental properties on the market has gone up by 4% in the 12 months since February 2016, while demand from tenants remains virtually static. In February, there were 34 prospective tenants registered per member branch – this is the same as in January, but is down when compared with February 2016 and February 2015 when there were 37 and 40 tenants per branch respectively.
However, rental growth has slowed in the capital, with only 8% of London-based agents reporting rent rises in February, compared with a national average of 25%. A quarter of London-based agents saw rents fall in February, compared to just 10% nationally.
David Cox, chief executive of ARLA Propertymark, warns: “The fact that rent prices in London are bucking the national trend is a positive sign for both renters and prospective renters in the capital. However, this isn’t being seen across the rest of the country, as the national average for the number of agents reporting rent hikes rings alarm bells.
“While London’s results indicate a step in the right direction, it must be taken with a pinch of salt. With the imminent withdrawal of mortgage interest relief and the government’s decision to ban letting agent fees will more than likely have the opposite effect on rental costs across the country if an outright ban is imposed. The costs of the services provided by letting agents will need to be recouped and will inevitably be passed on to renters through increased rent.”
Tenants look outside the capital
The latest Your Move buy-to-let index For February shows that rents are rising in the East and South East as tenants look further afield than London – which, along with the South West, saw rental fall over the year.
The average rent in England and Wales was £798 a month in February – up by 1% in the past 12 months when it was £790. Meanwhile, London rents were typically £1,280 during February 2017 – 1% lower than a year ago and 0.5% down on January’s figure of £1,286.
Valerie Bannister, lettings director at Your Move, explains: “The dramatic rent increases in London have now slowed as people look outside the capital in order to meet their housing aspirations.
“Areas in the South East and East of England have traditionally offered much better value than the capital and this has tempted many Londoners to look further afield for rental properties.”
An increase in the general level of prices that persists over a period of time. The inflation rate is a measure of the average change over a period, usually 12 months. If inflation is up 4%, this means the price of products and services is 4% higher than a year earlier, requiring we spend and extra 4% to buy the same things we bought 12 months ago and that any savings and investments must generate 4% (after any taxes) to keep pace with inflation. Since 2003, the Bank of England has used the consumer prices index (CPI) as its official measure of inflation (see also retail prices index).
The catch-all term applied to investors who buy properties with the sole intention of letting them to tenants rather than living in them themselves, with the proceeds from the let usually used for the repayment of the mortgage. Buy-to-let investors have to take out specialised mortgages that carry higher interest rates and require a much bigger deposit than a standard mortgage. Other expenditure can include legal fees, income tax (on the rental profits you make), capital gains tax (if you sell the property) and “void” periods when the property is unlet.