Confusion over rental market prices and demand

by Property 118

12:02 PM, 6th June 2017
About A year ago

Confusion over rental market prices and demand

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Confusion over rental market prices and demand

Homelet’s recently released rental index shows UK rental prices have fallen in May for the first time since 2009 by 0.3% with the average rent now at £901.

This may not be statistically significant over a one month period, but the biggest regional fall was in London of 3% compared to May last year.

Martin Totty, CEO of Homelet, said “May 2017 saw average rents nationally fall for the first time in eight years when the economy had suffered the shock of the financial crisis. HomeLet rental data suggests landlords are now facing a difficult balancing act between ensuring rents are affordable for tenants in a low real wage growth environment whilst covering their own rising costs.

“Tenants will still need a vibrant and growing rented sector to provide them with property options at the time of their choosing. Any constraint to the supply of rental properties, because landlords are unable to achieve the reasonable returns they require, cannot be in the long term best interests of tenants, especially if, as we’ve now heard from all the main political parties, the UK’s population continues to grow.”

Conversely the first quarter figures from Belvoir show average rental price increases year on year of a more significant 5.75%. Belvoir are correlating this increase with a fall in supply of property stock within the PRS due to Landlords being hit with rising costs due to Section 24 mortgage interest relief reductions and the 3% stamp duty surcharge on second properties.

This is backed up by a report by ARLA a couple of weeks ago >> https://www.property118.com/number-rental-properties-managed-per-agent-london-falls-sharply/99032/

“Association of Residential Letting Agents (ARLA) figures for April show a drop in the number of properties managed by agents in London of 31.8% from 148 per branch in March to only 101 in April.

However, the total number in the UK actually rose from 183 to 185 per ARLA member office.

This Demand and Supply imbalance is showing in rising rental values and a decrease in tenants looking to renegotiate rents reductions in London.

The ARLA report also shows that the number of Landlords looking to sell is now 4 per office each month and for the first time since June last year the average tenancy length has dropped from 17 months to 18.

ARLA’s  David Cox, reported “although the rental market in London has seen a large drop in the supply of properties available to rent it’s a different picture in the rest of the UK where we have seen little or no change to activity since March. It’s likely we’re seeing the rest of the rental market outside of the capital plateau as a result of the election in June, with renters potentially holding back on their property searches until after 8th June.

“It’s important that housing is at the top of the new government’s agenda, as we have had two elections and a referendum in the last three years which is stalling the policy process meaning that we do not have the right houses available to provide the homes people need.”

In London in particular the recent attacks on landlords are being felt with Stamp Duty and Section 24 mortgage interest relief reductions along with high property values and lower yields.”

Despite the blip in Homelet’s figures above the evidence from the vast majority of Property118 readers is that long term increase in demand for rental homes combined with the attacks on Landlords reducing supply mean the long term upward trend in rental prices all things being equal is likely to continue.

However, we will have to wait and see what effects Brexit will have especially in the London area.



Comments

Ian Ringrose

16:20 PM, 6th June 2017
About A year ago

I think a lot of people who rented out a former home with a low yield are now selling up due to S24, hence there may just be less high end properties in the mix.

Let’s say the rents where [ 500,400,400,400] in a given area, and the 500 property was sold, average rents would reduce, without any tenants paying a lower rent. This is way you should look at the medium rent, the rent that half the tenants pay less them, and half pays more then, rather than the mean (average) rent.

karin melbye

18:29 PM, 6th June 2017
About A year ago

The market in London has been terrible over the last six months. A lot of the rents have gone down. Seems to be a lack of tenants at the moment. It does not bode well for landlords needing to increase the rent to cover the extra taxes.

michelle green

0:15 AM, 8th June 2017
About A year ago

Reply to the comment left by "karin melbye" at "06/06/2017 - 18:29":

Interesting to see what Karin wrote as I have been very aware of this through recent experience, yet not seen it mentioned on any forums.
I have a great flat in a very desirable part of London and have never (in over ten years) had a problem letting it. I`ve always had a block viewing and literally by the time I get home - about 20 mins away - I`ve had three-four texts with excellent professional couples wanting to rent it. Some have offered me more than it`s been advertised for. To be honest I rarely had to paint it or do any work on it. It flew...
However my flat has now been empty for three months and thank goodness have a couple moving in next week. But it`s been a struggle. I`ve had to spend a fair amount to bring it up to top spec and lower the rent. People are haggling, making low offers and making demands that they would never have made before. Everyone who has the same type of flat as mine is having to lower the asking rent and have a near perfect property. There is now an abundance of high spec new build blocks - smaller but spotless.
Check out the portals and see how many properties have been reduced. A two bed now commands the same rent as a one bed did at the start of the year. Those who could only afford x area can now move up a notch to the next more desirable area.
I have two friends who own their own estate agency and who have a couple of their own properties. Even though they are dragging any prospective tenants (who are looking for the type of property they own), first to their own, they have nevertheless also had to reduce the asking rent and refurnish/paint etc and had 6-8 week voids. I know a lot of estate agents and they are all saying that they are shocked at the sudden change. There is a surplus of beautiful, high spec properties - including many new build blocks - and a great shortage of enquiries. Even reducing the rent to make the property competitive isn`t always doing the trick because of the surplus stock.
I think we`re all a bit shocked to be honest, and being forced to adjust our previous expectations.

karin melbye

9:49 AM, 8th June 2017
About A year ago

Reply to the comment left by "michelle green" at "08/06/2017 - 00:15":

Ditto to all of your comments Michelle. My experience exactly. I have had two properties empty for six months. An estate agent told me that contrary to popular belief there is an oversupply in London not an under supply. I think the problem is people cannot afford the property prices in London on the salaries they are on but that does not explain this sudden change of sentiment. I suspect it is worry about Brexit and jobs, in which case we are in for quite a number of years of this continuing, while at the same time having to pay more and more tax.

michelle green

16:50 PM, 8th June 2017
About A year ago

Karin,
That is worrying.
Are your properties for families or professional couples?
What is the feedback you are getting?
I think it`s a Brexit issue plus so many new builds (seems all these new builds are for renting out rather than home ownership!)

Mike D

9:53 AM, 12th June 2017
About A year ago

I'm not surprised about London to be honest. I've been advising friends to get out of London for 18m, it was clear looking at prices that it was way out of kilter than rest of UK, and how many more can be sold to foreign private investors and have such low yields.
It is a crash waiting to happen and with less immigration and pricing why would you go there anyway i've always thought. I have good 8% yields, good demand always high no voids, and rents have risen nearly 30% in last 2-3 yrs, and property is cheaper.


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