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Modest annual growth as rents hit ‘an affordability ceiling’

Annual rental price growth reached 3.1% in November taking the average UK rent to £898 per month, which although higher than November 2015’s average of £872, is £4 lower when compared to October, according to HomeLet’s latest Rental Index.

Rental price inflation has fallen from a high-point of 4.5% in March 2016 and the rate of inflation has now been flat or falling in each of the past five months.

This slowing rate of growth reflects modest decreases in average rents in many areas of the country, especially in London, which clearly suggests that the market is approaching an affordability ceiling.

Martin Totty, chief executive of Barbon Insurance  Group, HomeLet’s parent company, said: “November’s figures reflect a continuation of trends which the HomeLet Rental Index has been tracking for several months. While landlords have been able to edge rents up, the amount of the increase been slowing for a number of months, which suggests landlords understand that tenants have, or are, reaching an affordability ceiling, particularly given the uncertain economic climate.”

As the year draws to a close, HomeLet’s November Rental Index confirms a significant change of sentiment during the course of 2016.

In the first half of the year, rents across the UK consistently rose at rates above 4%, with the London market recording a peak of 6.2% in March; since the summer months, however, rental price inflation has slowed considerably.

In London, rents on new tenancies rose by just 1.6% over the year to November, while in the broader South East region, rents rose 2.7% on an annualised basis last month, down from above 4.3% this time last year.

2016 has seen a year of unprecedented change faced by private landlords, including the introduction of the 3% stamp duty surcharge in April, the scrapping of the 10% ‘wear and tear’ tax relief, the fact that mortgage tax relief is set to be phased out from next year, along with the need for landlords to now check the residency of their tenants.

What’s more, the Bank of England’s Financial Policy Committee will be granted greater powers over the buy-to-let market next year.

Totty added: “It is difficult to think of a period when there have been so many external  interventions in the private rental sector as yet seen during 2016; the impact of many of the changes are yet to be worked through and it’s unclear yet who will emerge as the ‘winners and the losers’.”

The November HomeLet Index is the first to be published since the government announced its intention to abolish upfront lettings agents’ fees to tenants. Many commentators assume this will ultimately have an impact on rents, as agents will be keen to maintain their revenues.

But landlords will also be looking ahead to the forthcoming tax changes and working out how they will be able to maintain profitability, and looking to compensate for the loss of tenant fees, which go to the agent, will be low on their agenda.

“Any sensible agency won’t pass on the charges to landlords, due to competition in the sector, so we don't foresee rent rises as there is no need to add the fees to rents,” said easyProperty's CEO Rob Ellice.

A growing number of buy-to-let landlords currently do not use letting agents to find or manage properties, and it has been suggested that many more may soon consider doing the same.

“We’re firm believers that as landlords’ purse strings are tightened by tax changes and the expected increases from traditional letting agents that landlords will look for alternatives,” said Gillian Kent, chairman at No Agent.

  • G romit

    Rents will go up, just night follows day. Yes, people have a limit to what they can afford or are prepared to pay, but there are always properties in cheaper areas, or smaller in size.

    The impending train crash aka Sec.24 will force Landlords to increase rents just to pay for this tax (and we're not talking of the odd percent or two but 20-50% albeit spread over 4 years), if they cannot increase rents then their business becomes unviable and they will evict, & sell-up. Reducing local supply which in its own right would push up rents.

    If anything, therefore, I can foresee the rate of rent rises accelerating not slowing as Landlords increase rents in anticipation and excluding people on Housing Benefit who won't be able to afford the higher rents anyway.

  • Brit Sixteen Sixty Four

    Its simple, if landlords push rent above affordability void periods will simply increase and more people will stay with parents. Strange how rents keep on going up above inflation and wages when landlords mortgage costs continue to fall.

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