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Lettings and Property Management

Average Rental Prices Are Set to Rise in 2016

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According to the Association of Residential Letting Agents, or ARLA, rents will go up on average in the UK in the New Year. This, they say, is just one trend that landlords and tenants will have to get used in 2016 and beyond.

However, the news that is most likely to be of importance to landlords with a portfolio in the South East of England is average rent increases, especially where rentals are already higher than in other parts of the country. According to ARLA, which produces information for both tenants and landlords, the expected rent increases are not merely down to inflation but as a result of a number of legislative changes which will affect the ways landlords operate in future. According to David Cox, ARLA's managing director, the various statutory regulations coming into play in the New Year will result in greater costs for landlords as they seek to comply. Inevitably, this will lead to costs being passed on to tenants as rental prices are pushed up.

Cox said that ARLA are now campaigning for the government to re-address its proposals in order to make life easier for landlords. \"The government should reflect on its proposals in areas like reducing mortgage interest relief and doing away with the wear and tear allowance,\" he said. Cox went on to say that another significant area that the government should reconsider is the increase of stamp duty on buy-to-let properties which is being hiked up by three per cent.

In a separate report that ARLA published in December, the conditions for rent rises were already in place following the stamp duty announcement made by the Chancellor of the Exchequer in the autumn. After this, their report found that twenty per cent of letting agents predicted that supply in the private rented sector would fall as a result of the tax hike. With landlords in the Portsmouth area and elsewhere being subject to such disincentives to invest, the supply in local rented housing could simply fall. In Southsea and Fareham, like elsewhere in the South East, rent increases in November 2015 were seen in almost a quarter of properties, according to ARLA's figures. This is in line with the UK average, although the East of England saw the greatest rate of rental increases in the same month, with some 40 per cent of properties costing more to rent than they did previously.

\"The problem of supply and demand in the private rented housing market will be pushed to its limit,\" said Cox, \"with rising demand starting to outpace supply.\" With such a confident prediction, choosing a letting agent that can manage higher rental rates in a professional manner will become ever more important. As rents increase, soon a few weeks or months rent arrears will make a significant impact on landlords' balance sheets, particularly those who rely on regular and managed income to service their business debts, often in the form of mortgages.

ARLA's findings appear to be borne out by others in the industry who back their claims that an upturn in average rentals is inevitable. Citing tax changes and the higher stamp duty, landlords who responded to a survey by SpareRoom, a flat sharing website, said that they would be demanding more in rent in 2016. According to SpareRoom, in the region of 38 per cent of landlords admitted that they proposed an upturn in rent to cover their own outgoings, principally in the area surrounding tax compliance. Indeed, nearly one in five of their respondents said their New Year rental increases would be in excess of three per cent, well above the rate of inflation. Along with tax considerations, their survey found that higher mortgage repayments and costly property repairs jobs were cited by landlords as a reason to set higher rents.

Despite its call for less of a tax burden to be placed on landlords, ARLA said that it did welcome some of the changes which will start to effect in 2016. \"It is good news that regulation in the private rental industry will tighten up over the course of the year,\" the letting agent trade body stated. Indeed, ARLA announced that it expected that the provisions held in the Housing and Planning Bill will be for the betterment of the sector, when it comes into force. ARLA's view is that the new law will afford enforcement bodies and the courts more leeway in handling rogue landlords and criminal operators in the sector, something that it likely to be welcomed by all professional landlords and letting agents.

Nevertheless, average rental increases in 2016 is likely to be the number one story for tenants and landlords alike in the next few months - and for some time to come. According to the Royal Institution of Chartered Surveyors, the cost of renting could rise faster than house prices over the next five years. Across the UK, they claim that rents may rise by an average of five per cent each year over the course of the next five years, with the corresponding figure for house prices standing at 4.7 per cent per year. That could mean that some tenants find themselves paying at least 25 per cent more than they do now in five years' time. Although time will ultimately tell on 2020 rental prices, Simon Rubinsohn, the chief economist of the Royal Institution of Chartered Surveyors, agreed that rentals would go up by an average of three per cent in 2016.

Sources:

http://www.arla.co.uk/media/1044038/2016-predictions-naea-arla.pdf

http://www.arla.co.uk/media/1044013/arla-prs-report-november-2015.pdf

https://www.lettingagenttoday.co.uk/breaking-news/2015/12/45-of-landlords-to-raise-taxes-in-2016--many-of-them-because-of-tax-changes

http://www.bbc.co.uk/news/business-35154420