Annual rental growth in the capital rose by just over 1.6% in the year to the end of November, compared with 3.1% across the rest of the UK. However, the second half of 2016 has been significantly slower than the first, when inflation was running at around 6%.
Rental price inflation in the capital is now running at barely over half the rate seen in the rest of the UK in a year of significant government intervention in the market.
HomeLet’s chief executive Martin Totty said November’s figures reflect a continuation of trends which the index has been tracking for several months.
A tenant signing up for a new tenancy during November agreed to pay an average monthly rent of £898, compared to £872 in November 2015.
“While landlords have been able to edge rents up, the amount of the increase has been slowing for a number of months, which suggests landlords understand that tenants have, or are, reaching an affordability ceiling, particularly given the uncertain economic climate,” he said.
November was the second month in which London rental increases failed to keep pace with the rest of the country – with the gap now more marked than at any time since HomeLet’s index began.
Period of change
HomeLet pointed to a year of unprecedented change faced by private landlords. The Spring Budget introduced a 3% stamp duty surcharge on purchases of buy-to-let properties and second homes. Landlords have also had to cope with the introduction of Right to Rent regulation, requiring them to check new tenants’ immigration status and take responsibility for their residency status.
Landlords also face changes to the rules on mortgage interest tax relief next year, plus government plans to abolish upfront letting agents’ fees to tenants.
“It is difficult to think of a period when there have been so many external interventions in the private rental sector as seen during 2016,” said Totty.
He added that many assume the abolition of upfront lettings agents’ fees to tenants will have an effect on rents as agents seek to recover the costs associated with setting up a tenancy.
“There is clearly now some uncertainty and it’s to be hoped tenants don’t assume fees are no longer their liability and risk losing the property they’ve found to rent. This would be an unfortunate unintended consequence of the announcement contained in the Autumn Statement,” he said.
“If tenants eventually are no longer liable for up-front charges incurred by agents, landlords will want to be even more certain tenants who put themselves forwards as prospective renters are thoroughly vetted and referenced since there would then be no financial “commitment” from the renter when making their application.”
Lea Karasavvas, managing director at broker Prolific, agreed that landlords are facing tough times. “If you own a buy to let, then quite simply, ouch,” he said. “Especially if you own investment property in London where rental yields are almost laughable when compared to the rest of the country. It’s been one hell of a year; that has thrown challenge after challenge to the private landlord.”
However, he added that he is still optimistic. “As we approach the 10 year anniversary of the credit crunch, lessons have clearly been learned and I still believe this industry has a great future.”
Rental figures from the November 2016 HomeLet Rental Index
| Region | Average rent in November 2016 | Average rent in October 2016 | Average rent in November 2015 | Monthly variation | Annual variation |
| Northern Ireland | £592 | £592 | £565 | -0.1% | 4.8% |
| South East | £1,009 | £999 | £964 | 1.0% | 4.7% |
| North West | £678 | £676 | £648 | 0.2% | 4.5% |
| Scotland | £610 | £606 | £584 | 0.7% | 4.4% |
| West Midlands | £662 | £663 | £634 | -0.1% | 4.3% |
| East of England | £901 | £904 | £874 | -0.3% | 3.1% |
| North East | £524 | £525 | £510 | -0.3% | 2.8% |
| South West | £786 | £787 | £767 | -0.1% | 2.5% |
| Wales | £604 | £609 | £590 | -0.8% | 2.4% |
| Yorkshire & Humberside | £620 | £619 | £605 | 0.2% | 2.4% |
| East Midlands | £596 | £601 | £587 | -0.8% | 1.6% |
| Greater London | £1,521 | £1,542 | £1,497 | -1.3% | 1.6% |
| UK | £898 | £902 | £872 | -0.4% | 3.1% |
| UK excluding Greater London | £749 | £749 | £725 | 0.0% | 3.4% |
| Notes: | Based on new tenancies in November 2016 | Based on new tenancies in October 2016 | Based on new tenancies in November 2015 | Comparison of average rent in November 2016 and October 2016 | Comparison of average rent in November 2016 and November 2015 |
