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Landlords are squeezed but the future looks bright for rental growth

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Brexit effect on the rental market
Written by Head of Market Insights at MyHomeGroup, Fionnuala Earley.

Landlords’ costs are being increasingly squeezed.  At the same time, the pace of growth of private rents has been slowing since the beginning of 2016, particularly in London.

All rental prices for the UK excluding London increased by 1.5% in the 12 months to September 2018, unchanged from the previous month -- but in London, private rents decreased by 0.2%. Some of the yield deterioration due to falling rents in the capital has been ameliorated by the small fall in average house prices at the same time.

This might all sound a bit bleak but looking ahead the prospects are much better. The Royal Institute of Chartered Surveyors continues to report falling stock available to rent.

Landlords are squeezed but the future looks bright for rental growth

Average yield for landlords

Furthermore, the number of buy-to-let landlords selling up has increased. This reduced supply will put upward pressure on future rents, especially when tenant demand is still strong -- RICS reports the strongest tenant demand in two years. But this, it seems, is taking time to feed through.  That’s likely to be due to pressures on household incomes, but also competition among landlords with property to rent, who want to keep void periods as low as possible to maximise their returns.

But new lets are only half the story

It seems that uncertainty, affordability and the effects of various tax changes are hitting existing tenants, too. Rather than choosing to buy a home, it seems that they are postponing purchases for now while conditions around Brexit become clearer.  As moving is costly for tenants, too, they are choosing to renew and stay put for longer. Evidence shows that this is feeding into rental growth, which on renewed tenancies has risen 2.8% in the last year, the highest level in 10 months. In London the situation is more stark, renewed rents have risen 3.2%, despite rents on new lets in the capital falling.

This is an important market development and shows that in a period where landlords and tenants are looking for security, it’s even more important that landlords manage their properties well and hang on to their tenants. That keeps voids and new letting costs down, as well as building up a rapport with tenants who are then more likely to stay put and treat their rented accommodation as a home. Taking proper care over rental management in a market like this looks like it is more important than ever.

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