Rents Continue to Rise, but Not All Good News for Landlords

Although the figures for rents from April to May of this year might have suggested a reverse in the trend for rising rents within the private sector, the latest results in from June show that there is no decline. The research by HomeLet, the UK’s biggest supplier of tenants’ references, shows the average rent in the UK has now increased to £768 per month, equivalent to a 1.1 percent increase from May. As would be expected rent rises remain highest in the capital, with the average paid for a month’s rent now standing at £1025, an overall 7.1 percent increase during the last year. The news is no doubt unwelcome to tenants who are already stretched to their limits in many areas by rent which accounts for a larger proportion of their salary. However, landlords should take note too.

Buy To Let Cottage

Buy To Let Cottage

What is fuelling the increase in rents?

With rents showing no chance of falling in most areas, it begs the question why? The main reason is that more people than ever are having to rely on the private rental sector to source their home, as fewer are able to get on to the property ladder themselves; many who would at one time have been able to own their homes. However, the number of private rental properties available has not been able to keep pace with the increase in the number of prospective tenants. As in any situation where supply cannot meet demand, prices are driven upwards. At this time of year some other factors are increasing demand for rental properties. There is always a rise in the number of people seeking to move into a rental property in June, as the race is on to make the move prior to the school summer holidays. Students are another group who drive demand up in June, as they are eager to find a property to rent for the next year of university before they start their long summer break. This year there has been the additional factor of the Olympics, encouraging people to move into a new property before the disruption it is likely to cause in and around London in July and August.

How will the rent rises affect landlords?

It might sound like an odd question, as the answer must be obvious, surely they will be better off. However, as tenants struggle to pay rising rents due to the combination of falling salaries in real terms and a higher cost of living, this can have a knock on effect on landlords. If their tenants are unable to keep up with rental payments, landlords are faced with the prospect of not being able to cover their own mortgage costs; whether they choose to evict their tenants or allow them to pay reduced rent for a time, landlords may possibly be faced with financial difficulties themselves. While landlords with a smaller number of properties might be able to manage, finding money to compensate for the lack of rent, those with a larger portfolio of properties are more likely to struggle and defaulting on a mortgage, with the consequence of fees and loss of the property, remains a possibility. In areas with the highest rental prices, tenants are also voting with their feet and choosing to live in cheaper areas. This has been seen in Chelsea and South Kensington, as while they remain the most expensive areas to rent, they have seen the biggest reduction in rents in the last quarter, as people look to rent elsewhere, reducing demand and consequently the price that landlords can charge also falls; potentially another reason why landlords might see a decrease in their rental income in certain areas.

by

Amy Millband

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