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Rental growth slows as landlords work to balance limited tenant affordability

  • 14/11/2016
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The average yearly pace of rent rises across the UK fell to 3% in October, as landlords strive to balance tenant affordability constraints with returns, data reveals.

According to the latest Homelet rental index, new tenants in October agreed to pay an average monthly rent of £902, compared to £875 a year earlier.

October is the second consecutive month to experience sluggish rent rises, with growth down from a rate of 4.5% in March.

Martin Totty, HomeLet’s CEO, suggested that buy-to-let taxation changes were having a large impact on landlord behaviour.

“Landlords are aware of the need to find a balance between what tenants can afford and the returns they require on their investment. While many landlords are facing higher costs themselves, including the impact of higher Stamp Duty on their property purchases since April, our data suggests that they have so far been cautious against a more uncertain economic environment.

“We know wage growth has lagged behind rental price inflation and it could be that we are approaching an affordability ceiling whereby landlords can’t attract tenants able to afford higher rents.”

The length of the average tenancy is also increasing, Homelet’s data showed, to a duration of 28 months. Totty said this trend could suggest that “landlords are valuing the security of a reliable tenant and accommodating their wish to remain in the property for longer”.

Areas such as Greater London and the South East have been hit harder by contracting rental price inflation, Homelet said. Rents on new tenancies in Greater London increased by 2.5% in the year to October, falling dramatically from a rate of more than 7% a year ago. Likewise, in the South East, growth was down from 4.3% to 2.7% in a year.

Regions where price growth was strongest in the year to October also experienced slower growth on a monthly basis. Both the West Midlands, where rents were 5.1% higher than in October 2015, and the North West, where rents were 4.4% up, fell marginally compared to September.

Totty advised that with higher inflation and slower economic growth likely to hit tenants next year, property owners should consider protecting themselves from unexpected defaults.

“With a period of greater economic uncertainty predicted, with potential impacts on inflation, interest rates and growth, rental property ownership presents both risks and rewards,” he said. “Reassuringly, the private rental sector has plenty of experience and expertise to advise property owners on products and services to protect their asset as well as their rental income in the event of an unexpected change in the circumstances of their tenant.”

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