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Costs set to rise for landlords

The Negotiator

Average annual UK rental price inflation fell to 1.7 per cent in December, the latest HomeLet Rental Index reveals, down from 3.8 per cent in December 2015. This follows a year in which HomeLet’s indices recorded inflation consistently close to 4 per cent in the first half, falling back in the third and fourth quarters.

Rental price inflation is still ahead of general inflation, but HomeLet’s data raises questions over the ability of landlords to mitigate cost pressures in 2017 and beyond. While many assume that landlords will pass on additional costs to their tenants, this may not be possible.

In the short term, changes to mortgage interest tax relief from April will limit buy- to-let landlords’ freedom to set borrowing costs against tax bills. The relief is due to fall further over the next three years, while landlords may also have to pick up the bill if the Government bans tenant fees.

Landlords also need to note tenants’ ability to pay rising rents. While a long-term structural imbalance in the PRS remains – demand outstripping supply, the moderation in rental price inflation in the second half of the year suggests many landlords already see an affordability ceiling. The slowdown was most marked in areas where rents were previously rising fastest – notably London, where the annual rate slowed to 2.0 per cent in December, from 5.5 per cent last year.

Much will depend on broader economic trends – in particular, the extent to which tenants’ disposable incomes increase as inflation begins to rise. HomeLet’s data suggests landlords are already charging rents marginally lower as a proportion of household income.

Across the UK, the rent on a typical tenancy in December accounted for 28.0 per cent of household income, down from 28.4 per cent a year previously.

Nationwide, the average monthly rent for a new tenancy beginning in December was £892, compared to £877 in December 2015. In London, rents increased from £1,478 to £1,508 over the year, a smaller percentage increase but a larger cash value.

HomeLet rental index image

February 13, 2017

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