Supply and Demand of the Rental Market
As housing demand and house prices grow, for many people the only option is to rent. The number of families privately renting homes has increased by one million in the last 10 years. This is good news for investors, although the Chancellors 3% SDLT surcharge which came in April this year means second homes and buy to lets will have increased transactional costs.
As demand for rented properties increases, the rush to acquire buy-to-let property is pushing prices up, with 49% more surveyors reporting prices to have risen in this year already. With the increased tax rates, this means investors will have to wait longer before they gain profit from their investment. On the other hand, these house price rises and punitive tax rates may prompt investors to discount the amount they are willing to pay. This could mean more properties may be sold at auction.
According to recent research, apart from London, rents are lower in all other areas of pre-recession UK. Research by Hometrack Data concludes rents are more affordable in comparison to 7 years ago. With this affordability comes the potential of rent increases for investment landlords.
• Mortgage Deposits
For many potential first time buyers the deposit required to satisfy lenders is unobtainable and many are pushed to rent instead. Therefore a lot of younger people choose high-quality rented accommodation as an alternative to getting on the property ladder.
• Increased House Price
Last year’s Land Registry figures show the property market had continued growth with house prices up by 4.2 per cent compared to the previous year. The increased house prices are making it harder for first time buyers to get on to the property market; especially when the increase in wages is not keeping up with the increase in house prices.
As above there is an increase for the demand of rental homes, but with the market being unable to satisfy the demand, letting agents believe that rental costs will increase throughout the year. Demand is not the only factor to impact on the increase of rental rates; the 3% increase to SDLT has a part to play. The increased tax percentage may discourage the amateur landlord from investing further. For those that do, Over 50% of UK letting agents believe rental costs will increase from April 2016. It could also trigger a decline in the supply of available properties coming onto the rental market, according to the report from the Association of Residential Letting Agents (ARLA).
David Cox, ARLA Managing Director, said: “The demand for housing continues to intensify as supply remains an issue across most of the country. This will most certainly cause rents to increase, with supply dropping, as competition for the limited availability of properties intensifies.”
In February demand for rental properties grew to an average 37 per letting agent branch, the highest since February 2015, as supply increased marginally.
However, after April 1st deadline some 63% predict that supply will fall as landlords exit the market.
Some 57% of ARLA members agree rents will rise once the stamp duty reforms have come in to effect, as increased costs for remaining landlords are passed through to tenants. (*)