Rents may not be able to rise further in 2017, warns HomeLet

Rent increases across the UK are now running at an average that is less than half the level of a year ago according to data from HomeLet. 

Rents rose on average 1.7 per cent in the year to the end of December, whereas for the 12 months of 2015 the level was 3.8 per cent. As recently as last November the annual rate was 2.9 per cent.

Across the UK as a whole, the average rent for a new tenancy commencing in December was £892 per month, compared to £877 in December 2015. In Greater London, rents rose from £1,478 to £1,508 over the same period.

HomeLet says 2016 was a year of two halves: during the first six months, annual rental inflation was consistently four per cent or higher, peaking at 4.7 per cent in June. In contrast, the second half of the year saw rental price growth steadily reducing to the lowest rate of increase in the final month of year.

In some areas of the country the slowdown over the year was even more marked. Rents in Greater London were just two per cent higher in December compared with 6.8 per cent at the mid-year point. Even so, rental inflation is still running ahead of general inflation as measured by the Consumer Price Index.  

While some property analysts have predicted strong rental price appreciation in the years ahead, particularly relative to house price growth, HomeLet says evidence from recent months suggests much more modest increases. “This could prove significant during 2017, with impending tax changes beginning in April potentially reducing the returns available from buy to let property investment” says a HomeLet statement.

While it has been suggested landlords impacted by the reduction in mortgage interest tax relief will seek to recoup this additional cost from tenants, this may not be feasible if lower rental price inflation persists, HomeLet claims. 

Further cost pressures to come include the potential impact of November’s announcement of a ban on letting agents’ fees, which could see landlords asked to meet such expenses in connection with renting their property to new tenants.

Across the UK as a whole, rent accounted for an average of 28.0 per cent of tenants’ household income before tax, down slightly on last December’s figure of 28.4 per cent. In London, the equivalent figures are 31.0 per cent and 31.2 per cent.

“The private rented sector is now having to cope with a series of disruptive elements, just at a time of great economic uncertainty, and amid a continuing systematic imbalance between supply and demand for residential property. The assumption that landlords have sufficient means to bear higher costs will soon be tested” explains Martin Totty, HomeLet’s chief executive officer.