Why Rental Prices Are Likely to Continue Rising
More landlords have increased their rental income than at any time on record. The reason? They have responded to the tenant fee ban exactly how we suspected they would. Exactly how the whole sector expected they would. And tenants are paying the price – exactly as we said they would. The only people who didn’t think the tenant ban would lead to landlords seeking to increase their rental income by increasing rent was 651 members of parliament, ‘led’ by the government.
New Figures Show a Leap in Numbers of Tenants Experiencing Rent Rises
According to ARLA Propertymark’s latest Private Rented Sector report, 55% of agents saw landlords increasing rents in June. This is 22% higher than the May figure (itself a previous high), 31% higher than June 2017, and 35% higher than in June 2018.
Tenant Demand Up, Rental Supply down
The report also shows that agents are experiencing a rise in tenant demand and a fall in the supply of property in the PRS. The average number of prospective tenants per branch rose to 70 in June from 69 in May, while the average number of properties per branch fell from 201 to 199.
The number of landlords selling remained steady over the year since June 2018, at four per branch on the month. The North East has been hit hardest by landlords exiting the market, agents there reporting an average of nine selling per branch.
Rental Property Is Scarce in London
Agents manage more rental properties in Scotland than elsewhere in the UK – an average of 270 properties per branch, though demand from prospective tenants is the lowest, at an average 31 per branch. This is in marked contrast to the situation in London, where there are only 144 rental properties and around 90 prospective tenants per branch.
Tenant Turnover Is Broadly Steady
In June, agents reported that tenants stayed in their properties for an average of 18 months, with an average void period of three weeks between tenancies. Tenants in London, the West Midlands, the East and the North East experienced the longest-average tenancies at 20 months.
With the highest number of properties and the lowest number of prospective tenants per branch, it comes as little surprise that Scotland is the ‘weakest’ of the UK’s regional PRS markets. Though fewer landlords sold in Scotland compared to elsewhere in the UK, the average tenancy is only 13 months.
Fewer Tenants Are Negotiating Rental Reductions
The flip side to rental income rises is those tenants who negotiate a reduction in their rent. This number rose slightly between May 2019 and June 2019, from 1.6% to 1.7%. However, this number has fallen from 3% in June 2017 and 2.6% in June 2018.
Again, this isn’t surprising – faced with a tougher tax regime and higher demand for rental properties, landlords are less willing to reduce their rental income.
The Outlook for Rental Income Is Very Positive
So, where does all this leave buy-to-let investors going forward?
The impact of the tenant fee ban is likely to continue to be transferred to tenants through higher rents. We forecast that this would happen, and we’ve been raising rents by an average of around 5% or 6% this year.
It’s not only the tenant fee ban that is encouraging landlords to increase their rental income. Tax changes, including the phasing out of tax relief at higher rates on mortgage interest payments, have led to landlords reassessing their property portfolios. More are selling underperforming property, and this is reducing supply. Likely to reduce supply further is the abolition of Section 21. Labour’s call for rent controls (and Mayor Sadiq Khan’s hope to introduce the same in London) will not encourage investors into the PRS, either.
In this environment, all that the government’s policies have accomplished is the opposite to what they were designed to do – more expensive renting and increased rental income for landlords. And we suspect that rental prices will continue to rise.
Did you raise your rental income by 5% or more this year? Contact Ezytrac today at +44 0 1522 503 717 to learn why so many buy-to-let landlords trust us to determine their rental price rises for them.
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