To quote just one member included in a recent RICS survey of its members:
Neil Foster, MRICS, of Hadrian Property Partners, Hexham says:
“Echoing the vindictive chaos being rained on the sales market by Labour’s first budget, rental stock continues to dwindle, applying further upward pressure to rent levels. Quite where the Ivory tower dwellers in Westminster expect most private tenants to live is a mystery!”
The rental property market in the UK is facing challenges not seen before. There’s a gap which is growing wider between the number of properties available for rent and an ever-increasing demand from those who want to, or need to, rent.
Reducing supply while demand is so high is leading to rising rent prices and limited choice for those who rent. There’s an imperative that landlord investors understand these market dynamics, so they can make informed decisions.
The Budget, it would seem, has done nothing to alleviate the situation. In fact, according to their recent survey by the Royal Institution of Chartered Surveyors of their agent members, there’s a good indication that the recent Autumn Budget measures will make things worse.
The main reason is there are fewer rental properties available. Landlords have been dissuaded from investing and indeed some have been divesting of their properties because of a seemingly constant stream of government measures under the last government and now, it would appear, to be continued under the present one.
Landlords, like all businesses, have been dealing with rapidly increasing costs since Covid and the Ukraine war, changes in regulations, and a tax burden that has added to this. It persuaded increasing numbers of landlords to downsize or leave the sector altogether.
The UK has had a rapidly growing population due to increased immigration. First-time buyers are struggling to save enough to get themselves onto the property ladder. This is due to rent-price inflation, increased living costs, higher mortgage interest rates and property prices. More people want to rent for the benefit it gives for flexibility, job mobility and a lifestyle choice, a trend accelerated since Covid.
The result is, with an increasing number of people looking to rent, and fewer rental properties available, rental prices are rising. It also means that landlords will be increasingly selective as they assess the affordability challenges many tenants face, and as they navigate a completely new environment where tenants will get considerably increased security of tenure under the forthcoming Renters’ Rights Bill.
The ONS figures for September 2024 and chart below show:
- Average UK private rents increased by 8.4% in the 12 months to August 2024 (provisional estimate), the increase rate down slightly from 8.6% in the 12 months to July 2024.
- Average rents increased to £1,327 (8.5%) in England, £752 (8.5%) in Wales, and £969 (7.6%) in Scotland, in the 12 months to August 2024.
- In Northern Ireland, average rents increased by 9.9% in the 12 months to June 2024.
- In England, rents inflation was highest in London (9.6%) and lowest in the Southwest (6.4%), in the 12 months to August 2024.
- Average UK house prices increased by 2.2% to £290,000 in the 12 months to July 2024 (provisional estimate); this annual growth rate is down from 2.7% in the 12 months to June 2024.
- Average house prices increased in England to £306,000 (1.6%), in Wales to £218,000 (2.0%), and in Scotland to £199,000 (6.0%), in the 12 months to July 2024.
The UK's population has been growing rapidly over recent years. In Mid-2022 the UK population was estimated at 67.6 million, a 6.8% increase since 2011. By Mid-2023 the population was estimated to be 68.3 million, a 1.0% increase since mid-2022. By 2021 the population was projected to increase by 6.6 million to 73.7 million by mid-2036, and by 9.5 million to 76.6 million by mid-2046.
According to the Office of National Statistics, the size of the population has changed for two reasons: natural change (births and deaths) and international migration.
The UK population is projected to grow because the ONS expects net migration to add people to the population each year for the foreseeable future. Net migration is the number of people migrating to the UK minus the number emigrating from it.
Population growth is adding to pressure on housing costs and all other social services and, says ONS, “it requires us to invest more in infrastructure like roads and hospitals to maintain current standards of living”.
For those landlords with a high level of borrowing and a small profit, it is actually possible under the current HMRC tax regime that the tax due is higher than their rental profits. The Section 24 tax regime introduced by George Osbourne is therefore responsible for significantly reducing the attractiveness of buy‐to‐let as an investment, particularly among higher-rate taxpayers. Couple this with reduced expenses reliefs, increased stamp duty, higher capital gains tax, demands for investment to meet increased environmental standards and the imminent introduction of the Renters’ Rights Bill and you have a considerable amount of disincentive.
The bill goes further than the Conservatives planned Renters (Reform) Bill. It will implement commitments made in the 2024 Labour Party manifesto, to reform the regulation of the private rented sector and is intended to “give greater rights and protections to people renting their homes, including by abolishing section 21 'no fault' evictions and reforming grounds for possession”
The Budget introduced further unwelcome changes for landlords. This included the increase on stamp duty on buy-to-lets and second homes for the existing 3 per cent surcharge above the SDLT imposed on primary residence purchases with an extra 2 percent now added.
A 5 per cent SDLT surcharge will add thousands of pounds to the cost of buy-to-let or a second home purchase. The Treasury claims this will free up some 130,000 homes for first time buyers.
While this may be welcome news for some first-time buyers, at the same time it means there are fewer buy-to-lets available for those wishing to rent.
Many of those RICS member agents who know what’s happening on the ground in the private rental sector expressed views that thought the Labour Budget would, far from improving things, it would simply make the situation worse for renters.
Another RICS survey respondent, Daniel Wiltshire, an actuary and independent financial advisor at Wiltshire Wealth reported that there were a number of his buy-to-let clients who had now decided that investing in property was no longer for them.
“The cult of buy-to-let is dead,” he said. “I've had several meetings with would-be property investors who have decided to pull out and look at stocks and shares instead.
“The national psyche is hard-wired to pour money into bricks and mortar, but the recent increase in stamp duty, along with other incremental tax rises over the past 10 years, has made even the most die-hard property enthusiast question the wisdom of putting all their eggs in a single, highly taxed basket.”
Most of the agents surveyed expect rents to keep on rising in the months and years ahead, due to this mismatch between supply and demand.
In every region of the UK the predictions made by most agents are for rents to rise over the coming three months. Wales, the Midlands, Yorkshire and the Humber were singled out for exceptional rises.
For those buy-to-let landlords who are willing to stick in the market and find ways to overcome the negatives, record levels of demand seem to guarantee that property is still a safe way to invest money.
The old idiom: “safe as houses” may well still apply.
Tags:
Comments