According to a recent report by RICS in PropertyWire, rents are predicted to rise by a further 4% during the next 12 months. The rise is caused by the impact of increasing levels of interest being charged on mortgages which make it nigh-on impossible for first time buyers to get on the property ladder, meaning more people are returning to the rental market, placing a significant squeeze on the number of properties available.
Many landlords are also leaving the market, which is also reducing the amount of suitable housing available to rent.
Talking about the rise, group chairman at Cornerstone Tax, David Hannah said:
“Rent prices are going up because landlords’ costs, particularly as a result of rising interest rates, are increasing.
“However, this is not the whole picture as there is still a chronic undersupply of housing in the UK in popular locations.
“For example, rent rises in London post pandemic have been as much driven by a lack of available properties as they have been by inflationary pressure.
“The situation has been particularly exacerbated for houses in multiple occupation (HMO) – these are landlords who typically include the costs of energy, heating, and other bills into the rent.
“The soaring increase in energy costs has as a result had to be factored into the rent for these types of properties. Accordingly, rent rises in these types of lets exceed inflation by a considerable margin.”
In addition to increasing costs, landlords are now obliged to ensure that their properties meet the governments new energy efficiency (EPC) targets which on older homes, could prove very costly to fix. All landlords will be obliged to increase the energy efficiency on properties to a rating of ‘C’ or above within the next 5 years, or face fines of up to £30,000.
On top of that, the Renters Reform Bill is also being passed through the commons and contains radical plans for the housing sector, giving tenants more rights. As Hannah explains:
“In terms of the rental reforms being considered, I am in favour of rogue landlords being driven out of the markets, but there are also good landlords who have bad tenants that need to be considered.
“The most important thing is to balance tenant rights against tenant obligations and ensure that landlords keep some of their authority.
“There are cases in which properties have been damaged and tenants refuse to let their landlord inspect the home, or where rent has not been paid for a considerable period of time, for example.
“I welcome the proposed changes of the renting rules, and agree tenants need protection, but landlords ultimately need rights too.
“Our study shows that landlords do need help alongside tenants as nearly 1 in 4 say their biggest mental health strain is managing their tenants.”
Retired Landlords Selling Up
According to PropertyWire, the majority of landlords selling up right now are those who have reached retirement age. Research by Hamptons has revealed that 73% of landlord sales in 2022 were made by people who were retiring, many of whom were early adopters of the first buy-to-let mortgages which launched in 1996.
A further 96,000 landlords will turn 65 each coming year, indicating that these demographics will drive landlord sales to a new peak within the next five years. Currently, the typical landlord is 60 years old, whilst 924,000 landlords are already over the age of 65.
Talking about the findings, head of research at Hamptons, Aneisha Beveridge said:
“This means that demographics alone will push up the number of landlord sales over the next five years to reach a new peak. This was likely to happen irrespective of the tax or regulatory changes introduced since 2016 and the more recent higher interest rate environment.
“But while the tax and regulatory changes haven’t driven a buy-to-let sell off, they have stemmed the next generation of landlords. The number of new purchases by landlords has remained relatively muted. Millennials, who have struggled to get onto the housing ladder, have not been in a position to afford or consider purchasing a buy-to-let too.
“While house price growth continues to slow, rents keep moving in the opposite direction. Tenants find themselves with a little more choice than they did last year, which has been reflected in a 10% increase in the number of tenants moving home.
“However, the number of rental homes on the market seems to have found a new normal at nearly two-thirds below pre-pandemic levels.”
Although age appears to be the primary reason for these landlords selling up, in many cases the decision to sell may have been compounded by lower-than-average returns, which in turn have been exacerbated by higher interest rates. According to PropertyWire, An investor who bought a property to let 20 years ago was achieving a gross yield of 4.3% relative to their sale price, compared to a landlord buying today who is achieving 6.1%. This implies that in many cases, landlords were selling homes with long-term tenants who were paying rents which have fallen below market rates.
Government crackdown on AirBnBs
But it’s not all doom and gloom for renters this week as the Government announced plans to refuse permission for AirBnBs in holiday hotspots, so that more properties will become available for local people to rent as homes.
Speaking about the move, Secretary of State for Levelling Up Housing and Communities, Michael Gove said:
“Tourism brings many benefits to our economy but in too many communities we have seen local people pushed out of cherished towns, cities and villages by huge numbers of short-term lets.
“I’m determined that we ensure that more people have access to local homes at affordable prices, and that we prioritise families desperate to rent or buy a home of their own close to where they work.
“I have listened to representations from MPs in tourist hot spots and am pleased to launch this consultation to introduce a requirement for planning permissions for short term lets.”
The proposals come alongside a separate consultation from the Department for Culture Media and Sport on a new registration scheme for short-term lets.”
Culture Secretary, Lucy Frazer, added:
“This new world of ultra-flexible short term lets gives tourists more choice than ever before, but it should not come at the expense of local people being able to own their own home and stay local.
“The government wants to help areas get the balance right, and today we have an incomplete picture of the size and spread of our short term lets market. This consultation on a national registration scheme will give us the data we need to assess the position and enable us to address the concerns communities face.”
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