John Goodall, CEO and founder of Landbay, believes demand for rental properties will increase as the market emerges from the seasonal summer slowdown.
Mr Goodall was reflecting on news that the average rent of a new letting in the UK grew by 0.24% in the first six months of 2017. That was just a third of the 0.79% growth seen during the same period in 2016, according to the latest Landbay Rental Index.
The slowdown, which began in April 2015, suggests that the supply of rental accommodation is still high, and that landlords have yet to leave the market in-force despite the more punitive tax regime first announced in the summer of 2015.
London has led the rest of the UK in falling rents, with June marking one full year since month on month rental changes in the capital first entered negative territory. It remains the only region in Britain to have seen rents actually fall, by -0.59% in H1 2017, and -1.01% over the full 12 month period. This compares to growth of 0.69% across the rest of the UK in H1 2017, and 1.59% over the past year.
Outside of the capital, rents have yet to begin falling, but there has been a notable deceleration in growth. England (without London) saw rents increase by 0.70% in the first half of 2017, compared to 1.14% in H1 2016. In Wales, growth slowed to 0.59% compared to 0.83% the year before, while in Scotland rental growth has remained fairly steady, slowing by only 0.04%, from 0.69% in H1 2016 to 0.65% in H1 2017. Only Northern Ireland has seen rents on new tenancies start to decline, falling to -0.23% in H1 2017 from 0.70% in the first six months of 2016.
Should the overall trend continue into the second half of 2017, UK rents would begin to fall, decreasing to -0.08% over H2. Without London, trend analysis suggests rental growth would continue to flatten, slowing to 0.60% from 0.69%, while rents in the capital would continue to fall, decreasing to -1.32%.
And Mr Goodall said: “While there remains a huge degree of regional variation, the overall trend has been a slowing of rents across the UK, most markedly in London, where we’ve now seen a full year of falling prices. Wherever they’re based, landlords have had to face a catalogue of challenges over the past two years, from stricter regulation, a reduction in tax reliefs, and a significant stamp duty tax spike when buying a buy to let property.
"Yet despite these disincentives, they has been little sign of them leaving the market, and even less of them passing on these costs to tenants in the form of higher rents.
“Looking ahead however, this trend is unlikely to continue. Demand for rental properties can be expected to increase as we come out of the seasonal summer slowdown, and October’s PRA changes give landlords yet another incentive to push through transactions before the new regulations kick in. The changes will require any landlord with more than four properties to be assessed against their full portfolio when applying for finance.
"There’s no avoiding the extra workload this will cause in the short term, and lenders and brokers alike should be preparing for both a rush to beat the deadline and also the extra valuations work that will need to be done on the other side. Rents may be decelerating, but brokers will need to keep their foot on the gas throughout H2 and beyond.”