As readers of these Nethouseprices columns will know all too well, the past couple of years have been somewhat challenging for landlords, with a new tax framework and changes to mortgage lending rules combining to make investing in property more difficult and less lucrative. Media features quoting experts who claim these policies to be demonstrably inequitable and harmful to the housing market frequently appear, but the government seems to be minded to stick with them, at least in the near- and medium-term. And there are further discouraging developments in the pipeline. In this piece, we look at the latest private rental sector news.
Letting Agency Fees to be Banned
Shortly after taking office the Prime Minister, Theresa May, stated that affordable housing was going to be a central strand of her administration. This was followed up in reasonably short order by the announcement that letting agency fees would be banned. As months passed with little further mention of the policy, there was a perception that it had been quietly dropped. Not so: the plan was confirmed in the recent Queen's Speech.
The rationale for banning letting agency fees is fairly clear. The fees are payable by prospective tenants and are sometimes hugely expensive, so, to the extent that they make housing less affordable, they are a part of the country's well-documented housing crisis. The counter-argument is that not all lettings agencies charge excessive fees for their services and they furthermore can't be expected to carry out such functions as checking personal references and credit scores on a complimentary basis, so they will pass these costs on to landlords if prohibited from charging tenants. The former group, whose incomes are already being eroded by new taxes and regulations, will in turn need to pass the expenses on to tenants via rent hikes. Arguably, then, the policy will most harm those whom it aims to protect. This contention is not new: it has repeatedly been suggested in response to the other policy changes affecting landlords that rents would rise and tenants would be the ultimate casualties. To date, though, this doesn't appear to be happening.
Rents Fall Again
Despite concerns that landlords would be obliged to pass on costs to tenants, the private rental sector has shown persistent signs of cooling down in the early part of this year and rents have now fallen for two successive months. HomeLet has published its latest rental price index which revealed that rents in the UK fell by an average of 0.3 per cent to £908 per calendar month in June compared with the same month in 2016. This bald statistic, though, conceals a much more nuanced regional picture. To summarise:
Rents rising month-on-month
- Scotland 2.3 per cent
- South East of England 1.7 per cent
- Greater London 1.5 per cent
- North West of England 1.4 per cent
- West Midlands 0.7 per cent
- North East of England 0.6 per cent
- Wales 0.4 per cent
- Northern Ireland O.3 per cent
Rents falling month-on-month
- South West of England 0.4 per cent
- East of England 0.4 per cent
- East Midlands 0.1 per cent
Rents rising year-on-year
- Northern Ireland 3.5 per cent
- East Midlands 2.8 per cent
- Wales 2.5 per cent
- North West of England 2 per cent
- Scotland 1.9 per cent
- West Midlands 0.2 per cent
Rents falling year-on-year
- North East of England 3.1 per cent
- London 2.6 per cent
- Yorkshire and Humberside 0.9 per cent
- South East of England 0.2 per cent
- East of England 0.1 per cent
Essentially, it would seem, the position is rather less gloomy for landlords than the 0.3 per cent overall decline in average rents headline would suggest. This being said, there is no question that the market has slowed from its peak of 4.7 per cent growth a year ago, a fact which tends to undermine the notion that there would be rampant rental price inflation in response to the government's controversial policies. Why?
Firstly, there has been a huge influx of new rental properties on the market, a glut occasioned by landlords rushing to boost their portfolios before the introduction of the new Stamp Duty surcharge last year. Tenants can consequently pick, choose and negotiate lower rents.
Secondly, in common with house prices in the UK, the rental market is probably approaching an affordability threshold in certain regions, giving landlords less latitude to increase rents.
And finally, the vast majority of landlords enjoy superb relationships with their tenants and have no real desire to make life more difficult for the latter by hiking rents. To the extent possible, they are trying to absorb their new costs in other ways.
As Martin Totty of HomeLet pointed out, however, it is still too early to predict the longevity of this trend: two months' data isn't sufficient evidence of a long term slowing of the market. The team here at Nethouseprices will, of course, monitor this story and keep you posted on the latest developments.
Prudential Regulation
The Prudential Regulation Authority (PRA) is introducing new rules - enforceable from 30 September - for loans to landlords with portfolios of four or more mortgaged properties. The regulations relate to the affordability criteria that lenders must apply to loan applications from this class of landlords. Various industry figures have expressed concern that these latest requirements will make borrowing more complicated and more expensive for landlords, and that some mortgage companies might be inclined to abandon this market. As with earlier modifications to the supervisory framework, the regulations constitute a concerted effort by the Bank of England's PRA to head off a possible "bubble" in the buy-to-let market, but critics argue that, since the financial crisis, regulators are growing overcautious and identifying potential problems where none exist. In any event, we recommend that landlords who might be affected by the new rules speak to their financial advisers to ensure that they have the best available mortgage products.
We hope you have found this article interesting. Visit the team here at Nethouseprices again soon for the latest news on house prices in the UK, the private rental sector and the wider property market, as well as for commentary and analysis of the issues affecting you, your family and your investments.
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