On several occasions over the last few months, I predicted that the rate of rental inflation (i.e. how much rents are rising by) had eased over the last year. At the same time I felt that in some parts of the UK rents had actually dropped for the first time in over 8 years.
Recent research backs up this prediction.
Rents in Rutland for new tenancies only grew by 3.3% in the last 12 months (i.e. not existing tenants experiencing rental increases from their existing landlord). When we compare that current rate with the historical rental inflation in Rutland, an interesting pattern emerges...
• 2016 - Rental Inflation in Rutland was 7.9%
• 2015 - Rental Inflation in Rutland was 3.0%
• 2014 - Rental Inflation in Rutland was 3.9%
• 2015 - Rental Inflation in Rutland was 3.0%
• 2014 - Rental Inflation in Rutland was 3.9%
The reason behind this change depends on which side of the demand/supply equation you are looking from. On the demand side (from the tenants’ point of view) there is the uncertainty of Brexit and the fact that salaries are not keeping up with inflation for the first time in 3 years. Critically this means tenants have less disposable income to pay their rent. As an aside, it is interesting to note that nationally, rent accounts for 29% of a tenant’s take home pay (Denton House research).
On the supply side of the equation (landlords’ point of view) Brexit also creates uncertainty.
However, the biggest issue was an upsurge of new rental properties coming on to the market in 2016, caused by George Osborne’s new 3% stamp duty tax for landlords in the first part of 2016. This meant a lot of new rental properties were ‘dropped’ on to the rental market all at the same time. The greater choice of rental properties for tenants curtailed rental growth/inflation. A slight softening of property prices has compounded this. Figures from The Bank of England suggested that first time buyers rose over the last 12 months as some were more inclined to buy instead of rent. Together, these factors played a part in the ongoing moderation of rental growth.
The lead up to May’s General Election didn’t help; people are fearful of change and don’t like uncertainty. So, now that we have a mandate for going forward over the next 5 years hopefully that has removed any stumbling blocks stopping tenants making the decision to move home.
Whether it be ‘hard’ or ‘soft’ Brexit negotiations (and with the Election result the Tories might have to be ‘softer’ on those negotiations) the simple fact is, we aren’t building enough properties for us to live in.
In Stamford and Rutland, the East Midlands and the wider UK, long-term population trends imply that rents will soon be growing faster than inflation again.
Look at the projections by the Office of National Statistics:
Tenants will still require a vibrant and growing rental sector to deliver housing options in a timely manner. As the population grows in Stamford and Rutland, and wider afield, any restriction to the supply of rental properties (brought about by poor returns for landlords) cannot be in the long-term best interest of tenants. Simply put, rents must go up!
The fact is that I see this as a short-term blip and rents will continue to grow in the coming years. With rents only accounting for 29% of a tenants’ disposable income, the ability for most tenants to absorb a rent increase does exist.
If you have a rental property in Stamford or Rutland and would like to find out its current market valuation, please contact me. I am here to help.
David Crooke, owner
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