A seesaw is predictable – as one side goes down the other rises. If only the rental market were as easy to forecast! With the current economy and inflation, there are two sides to the story. One where the rental market looks promising and the other where it does not. There are pros and cons to every situation and, as the letting agents in Sittingbourne will agree, this applies to the various aspects of the real estate market too.
We take a look at both these angles:
Property rent increasing:
Unaffordability: The current cost of living has made prospective first buyers put their dreams on hold due to unaffordability. This, in turn, has increased the demand in the rental market, as would be buyers are forced to rent instead. Automatically, rent rates will rise. Also, the high demand benefits landlords by reducing vacant periods of their properties, decreasing advertising costs and allowing a wider choice of tenants.
Lack of supply: The insufficient number of houses for rent in the social housing as well as private sectors is causing rent rates to inflate. Even though more properties are being sold, there is still a dearth against the demand. Also, some landlords have chosen to sell to avoid all the additional regulations and extra costs. This has added to the lack of supply resulting in rent rates increasing.
House prices: Some savvy investors are taking advantage of the panic-stricken landlords who want to sell as soon as possible, thus gaining bargaining power over house prices. This is especially so in the less expensive areas. Subsequently, they are able to offer their own rental terms to tenants.
Tax increases: Landlords with buy-to-lets are now faced with higher taxes, having to pay on the full rental income instead of, as earlier, on income less mortgage payments. Stamp paper charges for landlords with more than one property have been raised. Mortgage and remortgage costs continue to rise. Consequently, some landlords have had to increase their rent rates.
In some cases, other landlords are following this practice with a rent ratchet – “a clause in a lease which provides that the rent payable by the tenant after a rent review must not be less than the rent payable immediately before the rent review.”
Property rent decreasing:
There are a few factors which could lead to a reduction in rental rates.
Renters Reform Bill: The government’s “white paper” Reform Bill published in June 2022 proposes many laws to help tenants. Some of these are:
- disallowing section 21 “no fault” evictions,
- creating a register of landlords
- having an Ombudsman to benefit tenants with renters’ rights, etc
- making it illegal to refuse tenants who receive benefits.
Even though it is still to come into practice, the new restrictions may thwart landlords in general and may result in rents decreasing.
Cap on Rents: The government is introducing a 7% cap on rent increases in social housing from April 2023, to help renters deal with inflation and the high cost of living. For private landlords, quoting from https://www.gov.uk/private-renting/rent-increases, “for a periodic tenancy (rolling on a week-by-week or month-by-month basis), your landlord cannot normally increase the rent more than once a year without your agreement. For a fixed term tenancy (running for a set period) your landlord can only increase the rent if you agree. If you do not agree, the rent can only be increased when the fixed term ends.”
Regulations: Added to the restrictions of the Rental Reform Bill are the regulations to meet the desired EPC (Energy Performance Certificate) and the increasing mortgage and remortgaging rates. The financial pressure of meeting the expenses involved to undertake these tasks has led to some landlords selling their properties. It could also dissuade prospective investors from the rental market.
Conclusion: Although there are some factors swaying towards a decrease in property rent, there seems to be a majority moving in the other direction – ie, increase in rents. As long as there is a higher ratio of demand against supply, as in the present situation, rates and prices will continue to rise. Though many predictions fail, it looks as if the “rental seesaw” is shifting towards rental increases, even though they may not be as high as in previous years. So, if you are looking to let your property, it is advisable to first consider the above factors.