More landlords will leave the private rented sector in the next year as annual rental price growth has been falling or flat since 2016, according to a study by DJ Alexander.
The property management firm has found that over the last year, the average private housing rental price has increased by 0.9% across the UK as a whole.
It also recorded regional variations, with the average private housing rental price increasing by 0.9% in England, by 0.7% in Wales, and by 0.6% in Scotland over the last year. What’s more, growth in the mesium-term is also poor.
Rental price growth in England has been below 2.0% since May 2017 and below 1.0% in the last four months, which is down two thirds on six years ago. In Scotland, rental price growth was last above 2.0% in June 2015 and has fallen steadily – even going into negative territory four times since then. Wales, on the other hand, has performed slightly better, although it has never had 2% annual rental price growth and recently dipped to 0.7%.
The study also revealed ‘enormous’ regional variations within these figures, with the East Midlands the best performing area rising to 2.7%. London was at the other end of the spectrum, with annual rental prices falling by 0.2% over the last year and in negative territory for the last six months.
Over a five-year period, London has seen annual rent rates fall from 3.3% in October 2013 to -0.2% in October 2018, while the East Midlands has experienced annual price rises climb from 0.8% to 2.7% over the same period.
Elsewhere, the West Midlands, Yorkshire and Humber, the East of England and the South West have all witnessed substantial increases in their annual rental price percentages. However, the annual increases in London, the North East and the South East have fallen over the same five-year period.
David Alexander, managing director of DJ Alexander, said these figures highlight the ‘tightening private rented market’ where margins are being squeezed while the casual landlord feels the pinch.
With numerous areas experiencing static or barely rising annual price increases and recent legislative changes making it more expensive to be a landlord, many will be pushed towards exiting the market, he added.
“The tax changes introduced by George Osborne continue to reduce the offsets which make running a property more expensive while Chancellor Hammond has reduced capital gains tax (CGT) on selling renting property which makes the exit from the market more expensive,” he said.
“With the number of negatives increasing, some landlords, many of whom only accidentally entered the market in the first place, may decide that now is the time to leave.”
He said that landlords play an essential part in providing vital housing stock across the UK. The private rented sector now accounts for 20% of all housing stock (ahead of social housing which stands at 17.1%) and houses many millions of people. If the market contracts too quickly there will be many people unable to find suitable accommodation.
“What is clear is that there is no one experience which is applicable across the whole of the country,” Alexander went on. “Some areas are clearly holding up well and producing strong returns for landlords and investors whereas others are experiencing static or even falling prices.”
“Everybody knows that London is undergoing a substantial price correction in the rental market and the last six months have all been negative and the last month which showed an annual increase above 1% was in August 2017 so it is likely that this situation will persist in the medium-term. However, London has been through this before and there is little doubt that rents will start to rise again.”
He said that we need to be optimistic about these figures and recognise that property is not a static or fixed market.
“Rental prices will rise and fall with demand, and investors and individuals must understand this,” he reasoned. “But it is also clear that the private rental sector plays a crucial role in providing homes for millions of people and the less attractive this market is then fewer people will be inclined to be involved.”
Alexander concluded: “We need a responsive, dynamic and accommodating private rented sector as part of the overall mix in housing stock and the better landlords will adapt and survive to whatever the circumstances while those who were in it for the short term are likely to leave in the next year or so.”