How tenants could circumvent a 20% rent rise

How tenants could circumvent a 20% rent rise

According to the latest statistics, 79% of tenants could not afford the average rent rise needed for most landlords to remain profitable as a result of upcoming changes to the way mortgage interest payments are taxed.

However, a new report from Platinum Property Partners suggests that thanks to lower rents and living with multiple tenants, renters in HMOs would only face a potential average increase of £19 each – which more than three quarters (76%) could afford.

HMO landlords are also less likely to need to increase rents at all because their properties generate four times the rental income compared to a single-tenancy buy-to-let property.  
Since 6th April 2017, landlords must pay tax on part of their mortgage costs, as the ability to offset finance interest against rental income is restricted. The plans will effect higher rate taxpayers, as well as almost 500,000 landlords who will be pushed into this tax band as the changes artificially inflate their rental income. It is estimated that two thirds of landlords plan to raise rents to cope with these changes.
To offset the measures and remain profitable, landlords would need to raise rents by at least 20%. With average UK rents at £895, this is the equivalent to a £179 increase per month across the market as a whole. Only 5% of HMO tenants say they could comfortably afford a rent increase of more than £150, while more than three quarters (79%) would have to move out and find cheaper accommodation.
However, HMO tenants benefit from lower rents, with research from Platinum Property Partners showing they pay an average of £559 per month inclusive of bills. With six tenants typically occupying an HMO, the 20% rental increase would equate to an increase of £112 per property and only £19 each. More than three quarters (76%) of HMO tenants can afford a rent increase of up to £25, including 45% who could comfortably do so.
HMO landlords are also less likely to need to increase rents at all. Renting to multiple tenants means landlords with this type of property generate up to four times as much income as those with a single tenancy property, so they are better positioned to absorb the higher costs caused by the tax changes.  
The majority of tenants renting a room in an HMO have never experienced their landlord putting up their rent while living in the same property (92%) before. Even those who have experienced this have only dealt with small increases in the past, with more than four in five (87%) saying their rent increase was less than £50 more a month.

HMO tenants struggle to afford even small increases in rents

Up to £25

Up to £50

Up to £75

Up to £100

Up to £125

Up to £150

More than £150

I would be able to afford this increase








I would be able to afford this increase but I’d have to make cutbacks elsewhere








I would struggle to be able to afford this increase








I would not be able to afford this increase and would have to move out








Nearly half (44%) of HMO tenants would be worried about the costs of finding a new home if forced to move out

Faced with an unaffordable rent increase, PPP’s research shows 88% of HMO tenants would have to rent somewhere cheaper, while 29% would have to move in with friends or family and 6% would have to share with more people.
If the rent substantially increased or the property they live in was sold, 58% would be regretful because they are happy with their room and their landlord – in fact, 99% would consider recommending their landlord and property they currently live in. Almost half (44%) would be concerned about the costs involved with finding a new house/flatshare such as deposits and advanced rent payments. Property supply is another key issue: 25% expect they would struggle to find another property as there is a shortage of affordable homes to rent.
HMO tenants able to save almost a third more than private renters

PPP’s data suggests tenants in HMOs save an average of £224 a month. This is 29% more than the average for all private renters (£174).  
More than four in five (85%) say they would like to buy and own their own home in the future. However, fewer than half of this proportion (40%) say building a deposit for a house or flat is the main reason they are saving money. Other reasons include saving for a holiday or travelling (20%) or simply putting money away for a rainy day (13%). This suggests becoming a homeowner isn’t an urgent need for many renters.
Many HMO tenants are happy being in rental accommodation. 32% say they like the flexibility that renting brings, while 43% say it is convenient. Almost a third of HMO tenants (32%) say renting is more affordable than being a homeowner, reflecting the more affordable rents enjoyed by this type of tenant.
Steve Bolton, Founder and Chairman of Platinum Property Partners (PPP) comments: “Renting is an important stage of many peoples’ lives: rising property prices means more are opting to be tenants, while others prefer renting because of the flexibility and convenience it brings. But upcoming tax changes are set to hammer the rental sector, with negative implications for not only landlords, but tenants too.
Our research suggests many HMO tenants could not afford the average rent rise most landlords would be forced to make to remain profitable and would have to move out. This leaves landlords having to choose between potentially going out of business or losing a tenant. Fortunately, HMO properties provide relief for both tenants and landlords. HMO tenants enjoy much lower rents, enabling them to save for their long-term goals. HMOs also provide landlords with up to four times more rental income than a single-tenancy property, leaving them much better positioned to absorb rising costs.
Ironically, the tax changes have been brought in in an attempt to improve homeownership. But higher rents will make it much harder for tenants to save, putting costly deposits even further out of reach. The changes are also fundamentally flawed because the government thinks landlords and first-time buyers buy the same types of properties – which simply isn’t true. The Tenant Tax must be abolished before hardworking renters and landlords suffer the financial consequences.”

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Latest Comments

warren 26 Apr 2017

You're very welcome Mary! Glad you enjoyed them :)

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Mary Ward
Mary Ward 26 Apr 2017

Thank you for the wonderful ideas. First impressions can make or break a deal. It's sadly that many homeowners drop the kerb to create an off-street parking space.

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Tony Gimple
Tony Gimple 14 Apr 2017

I'm not at all surprised that so many landlords are still confused about what the tax changes really mean and how it will affect them. In particular, the blind rush to incorporation is leaving landlords...

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MH 13 Apr 2017

You are right that the bank holidays are going to be spoiled in looking for the properties. But people who want to sell their property and looking for the better relocation, they can get benefits of this...

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bnellyb 08 Apr 2017

There will be an exodus of private landlords over the next 5 years as tax changes take effect, private landlords provide an important service to the rental market, why do housing associations and councils...

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Fred Cassman
Fred Cassman 07 Apr 2017

"Make it look like you are at home": often people forget this and share on facebook their location!

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jared townsend
jared townsend 05 Apr 2017

It'll be interesting to see how & if the Government's asset sale regarding mortgages helps

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SecomTech 04 Apr 2017

...and not one mention of the rules on PERMITTED DEVELOPMENT!!! Unless you have studied the plans you will not know...It's probable a high proportion would not need planning permission...BUILDING Control...

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Jonathan 03 Apr 2017

That's a very interesting study indeed. There is no doubt that new services and web apps such as in the UK or Roomster in the US will change the way people look for a flatmate, and that tenants...

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MBM Homelets
MBM Homelets 23 Mar 2017

Although this is a very positive step, there is little or no guarantee of the standard of workmanship employed by the tenants. We have had experience of a professionally decorated property being ' painted'...

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ajay 21 Mar 2017

How is the "robust evidence" looking now?

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NathanG 20 Mar 2017

I've been watching the series so far and am completely baffled by the cases that were presented. Though, I don't think that we can protect ourselves from every scam possible - it will just make the scammers...

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