Buy-to-letJul 7 2017

Dramatic slowdown in rental income growth

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Dramatic slowdown in rental income growth

The pace of UK rental income growth has slowed to a third of that witnessed a year ago, amid more challenging conditions for landlords.

The average rent of a new letting grew by 0.24 per cent in the first six months of 2017, down from 0.79 per cent during the same period in 2016, according to the latest Landbay Rental Index.

Rents in London continued to fall, dropping by 0.59 per cent in the first half of the year and 1.01 per cent over the full 12 months.

Across the rest of England, growth slowed from 1.14 per cent to 0.7 per cent; in Wales, it declined from 0.83 per cent to 0.59 per cent; and in Scotland, it decreased from 0.69 per cent to 0.65 per cent.

Northern Ireland was the only other region apart from London to see a fall in rents, with a decline of 0.23 per cent witnessed in the first half of the year.

The figures suggest the supply of rental accommodation is still high and the predicted exodus of landlords from the market has yet to begin, despite the more punitive tax regime first announced in the summer of 2015.

A continuation of these trends during the second half of 2017 would see UK rents begin to fall – but John Goodall, CEO and founder of Landbay, said such a scenario was unlikely.

“Demand for rental properties can be expected to increase as we come out of the seasonal summer slowdown, and October’s PRA changes give landlords yet another incentive to push through transactions before the new regulations kick in,” he explained.

“The changes will require any landlord with more than four properties to be assessed against their full portfolio when applying for finance. There’s no avoiding the extra workload this will cause in the short term, and lenders and brokers alike should be preparing for both a rush to beat the deadline and also the extra valuations work that will need to be done on the other side.”

Tony Silver, director at London-based White House Mortgages, said he did not expect an exodus of landlords from the market or significant rental growth.

“What you will find is that existing landlords will just stick and hold,” he said. “They might not buy any more, but they won’t be liquidating their portfolios. Buy to let is here to stay.

“In London, most landlords are doing it for capital appreciation. They don’t trust fund managers with their pensions, therefore they are still going to want to hold property, as you can physically see that going up.

“I think rents are going to stagnate. Rental demand is still there because people can’t get on the housing ladder.

“The biggest problem in this sector is the Prudential Regulation Authority keep interfering. Landlords, lenders and brokers will always find a way around a rule. If people want to buy property, they will buy property.”

simon.allin@ft.com