Rents to Rise as Demand Outstrips Supply

Rises in rental prices in the United Kingdom are predicted to pick up their pace in the next five years, according to a new survey by the Royal Institution of Chartered Surveyors (RICS).

While property values are expected to grow by less than 20% in that period, RICS predicts that rental prices will go up by over 25 per cent. This could mean good news for landlords who may be able to get more out of their rental portfolio.

More and more demand, less and less supply

The last three months of 2016 saw the demand for rental properties among tenants continuously increasing.

In addition, the ARLA Propertymark group reported that the number of prospective renters who were newly registered with letting agents increased by as much as 31% in January.

At the same time, RICS predicts that landlords will continue to shrink their portfolios over the course of 2017, giving fewer properties for tenants to pick from, and pushing rental prices up. The last quarter of 2016 was the fourth in a row that saw a drop in new listings on the rental market, according to RICS.

This is because many buy-to-let investors are selling properties, with house prices in general at all-time highs, and in light of some of last year’s unfriendly legislation. For more information read: 

Among these are Fergus and Judith Wilson, the biggest landlords in the country, who pointed to the increased stamp duty as putting a pinch on their rental operations. They said that this, and newly tough rules on mortgage lending, meant that the prospects of landlords will be increasingly grim in the UK.

This all means that rental prices will continue to increase, with letting agents reporting rental rises of as much as 23% in January, according to ARLA Propertymark.

Possible encouragement for landlords?

While the RICS survey’s outlook was relatively gloomy for landlords, the government’s housing white paper, which was released shortly thereafter, seemed to promise some encouragement for the buy-to-let market.

The government put emphasis mainly on getting developers to invest in large-volume rental properties and "family-friendly" tenancies.

RICS’ head of UK Policy, Jeremy Blackburn, said that some sort of "turbo-boost" for build-to-renters would be necessary. He called for an end to "punitive measures" that work against landlords who are making an effort to increase the country’s rental stock.

He added that the government needs to avoid enacting conflicting legislation, like pushing the ban on letting agent fees while also trying to force longer tenancies. Blackburn pointed out that moves like these were sending mixed signals – and therefore creating uncertainty in the sector.

The RICS survey found that 25% of surveyors saw house prices rise in January. This trend is expected to continue in the next year across the country, with the exception of the capital.

All in all, things continue to be uncertain for the buy-to-let market, as Brexit and last year’s policy changes begin to take full effect. It remains to be seen what’s in store for landlords in the year to come.

If you would like to discuss you indivdual circumstances, why not give us a call. 

What are Landlords' Biggest Concerns for 2017?

The job of landlords has been getting increasingly complicated as the housing crisis persists, and various plans of action have been proposed in response. While the high demand for housing makes it a good time to let your property at attractive rates, there is an ever-changing (and growing) number of policies with which landlords need to comply.

There’s no doubt that the rental sector is transforming rapidly. That's why the landlords' insurance company Homelet has conducted a survey of over 4,000 landlords from all over the country, to find out what their biggest concerns are for 2017. Here are the broad strokes:

(More) new laws

Many of the biggest changes in the past few years have not been a result of market forces, but rather of the government’s reactions to these. From 3% stamp duty to the ban on agents charging letting fees, housing- and letting-related legislation has been plentiful, dramatic, and often worrisome for landlords.

With that in mind, many landlords are both fearing and hoping for new legislation in the coming year. 31% of the landlords responding to the Homelet survey list new laws as their biggest concern for the next year.

Restrictions on lending and tax relief for interest

Two closely related issues that have major implications with regard to financing rental properties are restrictions on mortgage lending, and on interest tax relief. Each category was listed as a concern by 29% of respondents in the Home Let survey.

While the restrictions on tax relief will largely affect those landlords in the higher tax brackets and may decrease their returns, limitations on lending will affect those landlords looking to acquire new properties and expand their portfolios.

Brexit and the fallout

With the recent activation of Article 50, Brexit has officially begun, but the full implications of it have yet to become clear. Many landlords (roughly 19% of survey participants) are therefore still understandably concerned about what it will mean for them.

The biggest issue here relates to supply and demand with regard to rental properties. A large percentage of London landlords, for example, may be worried about a depletion of the EU migrant tenant population in the famously diverse capital.

Housing prices

While the general trend in housing price values has been up, up, up in the past few years, most predictions foresee a general slowdown in 2017. This has around 14% of survey respondents worried.

Rental values are, of course, also a concern, but landlords tend to like to see the overall value of their portfolio grow as well – and that’s why it makes sense that a slowdown would cause some concerns.

Rent arrears

Finally, over half of respondents to the Homelet survey said they had had a bad experience with a problem tenant. This is an age-old problem when it comes to rental properties, which goes to show that even in a time of rapid transformation, some things never change!

ARLA & NAEA join forces to create Propertymark

Propertymark is the new one-stop shop for industry professionals, media, policy makers, and all other stakeholders in the professional property sector, as well as being an important consumer advocate.

The organisation has resulted from the fusion of two long-standing advocates in the realm of professional property rentals, ARLA and NAEA. These two bodies have championed key stakeholders in the sector for over fifty years, and have decided to join forces to be able to better serve the interests of all their clients.

Connecting with consumers

One goal of the merger is to boost awareness for the types of services that these organisations have long provided, including connecting consumers to property agents that they can trust.

David Cox and Mark Hayward, chief executives respectively of ARLA Propertymark and NAEA Propertymark, have released a statement laying out the mission of the newly formed team.

"Homes are the most important issue for consumers, and our members are there to protect and guide people with property transactions."

Cox and Hayward add that many consumers looking to buy or rent a property become confused by a rapidly changing market, and that it is not always obvious where to find the best sources of information.

"Customers don’t always know where to look for advice, or don't if they are dealing with a professional. Propertymark is changing this."

One of the main tasks of the newly formed Propertymark will be direct outreach to consumers. Cox and Hayward stated that their aim was to enable people to,

“recognise our brand and understand that by choosing a Propertymark Protected agent, they and their money will be protected."

Finding the "right" agent

Getting a good agent is perhaps the most important part of the buying, selling, or letting experience. It can have a major impact on cost, time and communications. In this industry, everyone seems to paint themselves as an expert, even when the information they are giving out is patently false. This makes it hard for consumers to know whom to trust.

Propertymark prides itself on its standards and on making sure its members always live up to them. This means that if Propertymark recommends an agent to you, you can be sure that you are in good hands.

Any estate agent, letting agent, auctioneer or valuer registered with Propertymark will be able to proudly display the Propertymark logo, which means they can ensure that you will be protected as a client.

Additionally, it means that your money is actually safeguarded in Propertymark’s Client Money Protection (CMP) scheme.

An Industry fraught with challenges

The housing market in the UK is widely agreed to be in crisis, and consumers are bearing the brunt of the problems. Housing prices have risen dramatically in recent years, and recent government actions to stop the skyrocketing costs have often just made them worse. See:

The Government's Housing White Paper: What does it mean for Landlords

Claiming of tax relief on Mortgage Interest over the next few years

Banned 'Tenant Fees' good for tenants?

In such a turbulent time, those looking to purchase a home or rental property need a guide to the industry. And that’s what Propertymark proposes to be.

The Government's Housing White Paper: What does it mean for Landlords?

Last month’s government white paper on the UK housing crisis openly acknowledges a problem but does not propose much in the way of a solution – particularly where landlords and affordable rental housing are concerned.

What it proposes

The government white paper points explicitly to out-of-control rises in housing prices in recent years and observes that the prospect of buying a home is nothing but a "distant dream" for young families in the UK. So the thrust of the government’s plan is to make it more feasible for these young families to purchase their own property.

And how do they propose to do this? By increasing the rate of home building by tens of thousands of properties a year. The idea is to flood the market with more supply in order to bring down costs.

Where the problems are

There is nothing wrong, in principle, with supporting more building. But the effects proposed in the white paper will be a long time in the making and may leave landlords and would-be homeowners hanging for several years.

The white paper does nothing about the hefty fees levied on buy-to-let owners by past administrations, like 2016’s hike in stamp duty. These types of fees keep landlords from being able to build and maintain affordable rental housing, which is without a doubt the quickest fix for people looking for a home.

Additionally, while the white paper acknowledges that "only around 11% of land in England has been built on," it proposes little in the way of expanding the areas available for more building.

The paper’s authors have refused outright to open up now-restricted areas for development. They propose instead that new homeowners may have to manage with smaller living spaces as a result of urban congestion. That's hardly a solution when there is so much of the country left to build on.

What to do

The government needs to start by repealing the mistakes of past administrations, including the hefty stamp duty tax and limits on long tenancies.

While these ideas were well intentioned, they actively prevent buy-to-let landlords from providing affordable housing for those who do not currently have the savings to buy.

They also restrict the freedom of choice on the part of people who would prefer to rent.

Not everyone is ultimately looking to be a homebuyer. The upward trend in renting in recent years is not just a result of market forces, but lifestyle changes as well.

As young people are increasingly mobile, changing jobs, entire careers, and cities every few years, it makes sense that many of them would prefer renting to buying. Hampering landlords from being able to supply affordable housing does nothing for this demographic.

Additionally, the government needs to remain open to building in places that were previously undeveloped. The country does not just need more homes; it needs more homes in the right places. Whether or not it sits well with many politicians, this may mean opening up previously restricted areas to build.

Regional Property Price Rises Outstrip London in 2016

Increases in property values in a number of British cities outpaced those in London in 2016, a change that may have been due in part to uncertainty around the prospect of a so-called "hard Brexit".

Some experts have predicted that this shift is here to stay, at least for the next few years, and could shrink the North-South divide in the country’s housing prices.

Strong Showing for Manchester

The cities that saw the biggest increases in property values in 2016 were Bristol and Manchester, where prices increased by 9.6% and 8.9% respectively over the course of the year.

Birmingham also posted higher house price increase numbers than London, 7.5% for the West Midlands municipality compared to 7.3% for the capital.

In addition, Oxford, Portsmouth, and Southampton saw higher rises than London (8.1%, 8%, and 7.9%), but this is less surprising as these southern urban centres have long posted strong house price figures.

Cardiff and Liverpool came in just below the capital with 7.2% and 7% rises, respectively. Nottingham and Bournemouth, both with 5.7% rises, were not far behind.

These numbers come from Hometrack UK, an organisation whose house price index follows the movements in housing prices in the 20 largest cities in the United Kingdom.

According to Hometrack, the increase in the London numbers was the lowest in the last three years. However, it was still a substantial increase, while home prices in the north and midlands remain relatively low.

The average price of a home in London rose to £484,800, and those in Oxford climbed to £422,700. Meanwhile, the average home in Birmingham is still only £147,500, and in Manchester, the average is £151,200.

Still, according to Hometrack, the soaring house prices in and around the capital, and the fact that they are now nearly 14 times average earning levels may indicate the coming of a period of "readjustment", potentially lasting for several years.

Narrowing the Gap

The company’s insight director, Richard Donnell, has said that the next year will be likely to see a similar pattern to that of 2016, where housing prices in the lower-priced cities outpace those in the more expensive markets. That’s to say, according to Donnell, the north-south gap in housing prices "might finally start to narrow once again".

Donnell said the latest index numbers were very revealing, and mean that "the impetus for house price growth is shifting to more affordable cities". Donnell gave the example of Manchester, where he says housing stock is only barely keeping up with the demand for homes, a situation that will inevitably push up prices.

Of all the major cities on Hometrack’s list, Aberdeen is the only one in which housing prices fell in 2016, although according to Donnell, the last few months of the year represented a bit of a rebound for the city.

As for other Scottish urban centres, Glasgow and Edinburgh both posted modest house price increases of 4.9% and 3.7% cent respectively.