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Is the UK heading towards a rental crisis?

Vivien Crossley (2019-06-22)

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Landlords have issued a stark warning over the health of Britain's private rented sector as more and more property investors look set to sell up in the face of falling profits.

Open kitchen in a fancy restaurantA wide-ranging study of almost 2,500 landlords by the Residential Landlords Association has found that a quarter of private landlords are looking to sell at least one property over the next year.

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Rents may rise as tenant demand continues to outpace the number of homes available to rent 

David Smith, policy director for the RLA, said: 'All the talk of longer tenancies will mean nothing if the homes to rent on not there in the first place.

'The Government's tax increases on the sector are already making it difficult for tenants to find a place to live, with many landlords not renewing tenancies. 

'If rushed and not thought through, planned changes to the way landlords can repossess properties risk making the situation even worse.' 

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Minister for Housing and Homelessness Heather Wheeler said: 'The changes we are implementing will create a more stable and secure sector and will have clear benefits for landlords to operate and invest in.

'Our proposals are designed to strike a fair balance between landlords and tenants to maintain the supply of good quality rented accommodation.'

In London, demand has dramatically outstripped supply with the number of available rental properties in the capital down by 33 per cent compared with two years ago, according to Rightmove. 

This has inevitably forced rents up in the capital to their highest ever levels.  

So is the country headed for a rental crisis? Yes and no. 

Some 15 per cent of the landlords responding to the RLA survey also said they were looking to buy at least one property over the next year. 

And the extent of the supply and demand problem varies drastically depending on which part of the country you're in. 

Last week This is Money revealed that London-based landlords are leaving the capital in search of better yields in areas like the North and the Midlands.

The number of London landlords buying in the capital has dropped by a dramatic 34 per cent over the past decade. 

Some 17 per cent of that fall has been since 2015.

The stamp duty surcharge announced that year has added an average £11,760 onto the cost of a second home in London since. 

This, combined with high house price growth and a clampdown on landlord tax relief, has pushed landlords away from the city and surrounding commuter belt where house prices are at their highest in Britain.

But while they've abandoned the capital, one third of London-based investors buying new property in the past year bought in the Midlands and North, up from just 14 per cent in 2015 and 4 per cent in 2010. 

This could indicate that landlords are re-balancing their portfolios away from less profitable areas such as London and towards higher yield areas in other parts of the country.

Gray Stern, chief executive of property investment platform Dot Residential, said: 'Successive legislative and tax changes have hit buy-to-let investors hard over the past few years, particularly for those owning property in their individual names. 

'However, sound investment opportunities still exist, particularly for those looking to build portfolios in fast growing markets outside of London.' 

Proportion of London-based landlords who bought buy-to-lets outside the capital

Once the dust has settled on this rebalance, will tenants be better or worse off? 

Overall, across the country it appears that landlord appetite is waning while tenant demand is on the rise.     

The Ministry of Housing, Communities and Local Government is set to release new figures on the number of private rented homes in England this month, but last year's figures revealed a drop of 46,000, the largest reduction since 1988.

By contrast the Royal Institution of Chartered Surveyors pointed out in its recent market survey that tenant demand has continued to rise for a third consecutive month while landlord instructions slipped further. 

With this in mind, the trade body predicts rental growth of around 2 per cent over the next year - but after that forecasts a 3 per cent rise every year until 2024.

One in four landlords reported an increase in perceived demand in the past three months

In London, the situation is already far worse for tenants. London's average asking rents have risen 8.2 per cent in the past year, with the average rental property in the capital now costing a record £2,093 per month, according to the latest Rightmove figures.

This is the sharpest rise since Rightmove began reporting this data back in 2012.

Demand has dramatically outstripped supply in the capital with the number of available rental properties in the capital down by 33 per cent compared with two years ago, while available rental stock has dropped 13 per cent for the rest of Great Britain.

Simon Heawood of Bricklane said: 'Demand has risen in areas outside of London, primarily driven by stronger yields and recent price performance, with prices in areas such as Manchester rising by 5.1 per cent over the last 12 months. 

'That said, London continues to offer exciting pockets of opportunity for the disciplined professional buyer looking to access promising local sub-markets at competitive prices.

'Even taking regional variations into account, there is also a clear outflow from buy-to-let as a whole. The number of new buy-to-let mortgages has dropped by over 50 per cent since 2016, while more and more landlords are selling up, which resulted in the government's bumper capital gains tax receipts this year. 

'While some larger professional landlords are continuing to buy, a raft of new government tax penalties has made individual, direct buy-to-let a less and less worthwhile investment for many part-time landlords.'

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