Rental price inflation in the Capital is now running at barely over half the rate seen in the rest of the UK.
While London landlords are still seeing rent increases in cash terms, as rents in the Capital are significantly higher than anywhere else, they clearly feel unable to raise prices at the rates seen during the first half of the year, when inflation was running at around 6pc. November was the second month in which London rental increases failed to keep pace with the rest of the country – with the gap now more marked than at any time since HomeLet’s index began.
Across the UK, rents rose by an annual average of 3pc in November, the fifth successive month in which rental inflation has been flat or falling. A tenant signing up for a new tenancy during November agreed to pay an average monthly rent of £898, compared to £872 in November 2015.
Martin Totty, HomeLet’s Chief Executive Officer, 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.”
2016: a year of two halves – and unprecedented Government intervention
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 4pc, with the London market recording a peak of 6.2pc in March; since the summer months, however, rental price inflation has slowed considerably.
2016 has seen a year of unprecedented change faced by private landlords. The Spring Budget introduced a 3pc stamp duty surcharge on purchases of buy-to-let properties and second homes, prompting a surge in sales during March as landlords rushed to complete transactions before the new tax came into effect in April. Landlords have also had to cope with the introduction of Right to Rent regulation, requiring them to check new tenants’ immigration status and ultimately be responsible for the residency status of their tenants.
Many landlords will also be acutely conscious of changes to the rules on mortgage interest tax relief, which will begin to be phased out from April 2017. This, coupled with the Government’s plans to abolish upfront letting agents’ fees to tenants, rounds off a challenging year for the industry.
Martin 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 abolition of lettings agents’ fees
The November HomeLet Index is the first to be published since the Government announced its intention to abolish upfront lettings agents’ fees to tenants. Most commentators assume this will ultimately have an affect on rents, as agents need to recover their legitimate costs associated with setting up a tenancy which they will argue are many and varied.
There seems little detail currently available as to precisely what will and will not be allowed and presumably a period of consultation will be required for parties to work through the implications. It may be this will take some time to complete.
Martin Totty concluded: “There is clearly now some uncertainty and it’s to be hoped tenants don’t assume fees are no longer their liability and risk losing the property they’ve found to rent. This would be an unfortunate unintended consequence of the announcement contained in the Autumn Statement.”
If tenants eventually are no longer liable for up-front charges incurred by agents, landlords will want to be even more certain tenants who put themselves forwards as prospective renters are thoroughly vetted and referenced since there would then be no financial commitment from the renter when making their application.”
