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Market update for residential landlords

Published on Thursday, 01 September 2016

New stamp duty rules, Brexit and the Bank of England slashing interest rates to an all-time low of 0.25%, to say it’s been an interesting few months is an understatement. We are living in uncertain times and we have yet to see the full repercussions of the EU referendum vote, but for landlords, the outlook is calm and relatively stable.

Savvy landlords snapped up houses ahead of the new stamp duty rules in April which did create a wider choice of property to rent in the months which followed. Available rental properties hit a high in the UK in July whilst demand dropped slightly, but landlords have much to cheer.

The majority of agencies reporting rent prices remaining static, according to the July rental sector report from the Association of Residential Letting Agents (ARLA).

The number of properties available to rent increased slightly, 184 were identified, a 5% rise from the previous month, although year-on-year supply is actually down, in July 2015, 189 properties were available to rent. This was mirrored by a small drop in demand which has seen the 37 rental enquiries per branch in June reduce to 36 in July.

 

However, the report also found little negative influence following the vote to leave Europe with 71% of agents not experiencing any change in rent prices and 61% said demand remained steady.

 

Rents in the UK’s private rental sector increased by 2.4% in the 12 months to July 2016, unchanged compared with the year to June 2016, according to the latest index data.

 

The view is supported by latest figures from the Office of National Statistics (ONS) which showed rental prices grew by 2.6% in England, 0.2% in Scotland and were unchanged in Wales in the year to July 2016.

 

Residential rental increases were highest in the South East at 3.5%, up from 3.4% in June 2016, and the figures for the region surpassed London at 3% with growth in the East of England also outpacing the capital at 3.1%. Annual rental growth in the South East has surpassed that of London since May 2016. The ONS report cites the increases to be a direct result of demand to be higher than supply.

By digging deeper and comparing market analysis from a variety of sources and a slightly different picture emerges, particularly surrounding the weeks after the April stamp duty deadline and post Brexit.

Data from the buy-to-let index from Your Move and Reeds Rains in June showed rents in England and Wales to have fallen by 0.2% month-on-month for May 2016 against an average growth of 0.4% over every May since the recession. Property experts identified the drop as a direct result of the glut of houses which came onto the rental market following the rush to complete before the April stamp duty deadline. However, rents were still up 1.8% overall in the past 12 months, but this was a significant drop compared to January when the annual growth figure stood at 3.6%.

This so-called 'short term mismatch' led to some excellent deals in May and June, according to news website Propertywire, which also predicts fewer homes to rent overall as a result of the punitive measures imposed on landlords.

The report also shows whilst arrears have risen slightly (9.3% of all rent due in May was one day or more in arrears compared to 8.1% in April) the trend is one which suggests tenants are less likely to fall behind with their payments. The latest Tenant Arrears Tracker from Your Move and Reeds Rains showed a 4% fall of households with serious rent arrears in the first quarter of 2016 compared to the fourth quarter of 2015.

 

In July GfK, which produces the Consumer Confidence Barometer (CCB), measured post-referendum sentiment and found all key measures had dropped and an eight point drop was recorded for the index overall bringing the score down to -9. The drop was the sharpest for 21 years. Not surprisingly confidence among remainers was lowest at -13 with more optimistic leavers at -5. By August the CCB recorded confidence had improved with the barometer measuring -7.

 

When consumer confidence drops, people typically put off major expenditure such as house buying and car purchases.

 

However, Reeds Rains’ analysis showed the property market remains strong and at the end of June property prices were still 6% up compared to the previous year.

 

As far as buy-to-let investors are concerned, a dip in consumer confidence and a subsequent delay to purchase can work in their favour providing them with a wider choice on the property market and less demand. Plus if people are putting off house purchases, many of them will still need a roof over their heads thereby creating an additional pool of tenants.

 

Meanwhile, the Bank of England’s interest rate reduction in early August to 0.25%, the lowest since the bank’s creation in 1694, may strike fear into the hearts of investors and economists as governor Mark Carney and his team work to stave off a Brexit induced recession, but it is good news for house buyers although mortgage rates are already low. Carney is trying to encourage banks to lend to help stimulate the economy so buy-to-let investors could find themselves in an advantageous position if they are seeking to expand their property portfolio.

 

Other signs of a buoyant outlook include an increase in conveyancing activity in the UK residential housing market which increased in the second quarter of 2016. Changes to stamp duty has led to an increase in transactions of 24% year-on-year, according to the latest edition of the Conveyancing Market Tracker from Search Acumen

 

Sales notched 286,425 up from 230,430 as homeowners sought to beat the stamp duty changes for buy-to-let properties and second homes from April. Completions recorded in the second quarter of 2016 were some 30% higher than two years ago and 59% higher than in 2013 and three months before the increased duty was implemented there was a rise of 4% compared with the first quarter of 2016.

 

We still have much to contend with as far as Brexit is concerned with uncertainty the order of the day, but the market is looking stable for landlords with little movement in rent prices and indications of fewer rent arrears issues.

 

As we head into the final quarter of the year, some landlords may start thinking the time is right to expand their property portfolio. As ever, we will be watching the market with interest and will bring you further updates over the coming weeks and months.



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