You’ll have seen my most
recent market update. If you had missed it, check out the video here on YouTube.
It would appear that the rental market is a little bit “soft” at the moment. An
oversupply is certainly causing prices to come down. Odd this, because the
summer is notoriously the busiest time of the year, as
I’ve written in the past. Fear not, I suspect that the real rush is yet to come
as the August and September months approach.
It would appear that rent
rises are easing in Clapham, at least they have been over the last year. At the
same time I felt that in some parts of the UK rents had actually dropped for
the first time in over eight years. Recent research backs up this prediction.
Rents in Clapham for new
tenancies fell by 1.2% in the last 12 months (i.e. not existing tenants experiencing rental increases from their
existing landlord). When we compare that current rate with the historical
rental inflation in Clapham, an interesting pattern emerges...
·
2016 - Rental Inflation in Clapham was 7.7%
·
2015 - Rental Inflation in Clapham was 9.2%
·
2014 - Rental Inflation in Clapham was 9.4%
The reason behind this
change depends on which side of the demand/supply equation you are looking from.
On the demand side (from the tenants
point of view) there is the uncertainty of Brexit and the fact that salaries
are not keeping up with inflation for the first time in three years. Critically
this means tenants have less disposable income to pay their rent. As an aside,
it is interesting to note that nationally, rent accounts for 29% of a tenant’s
take home pay (Denton House).
On the supply side of the
equation (landlords point of view) Brexit
also creates uncertainty. However, the biggest issue was a massive upsurge of
new rental properties coming on to the market in late 2016, caused by George
Osborne’s new 3% stamp duty tax for landlords in the first part of 2016. This
meant a lot of new rental properties were ‘dropped’ on to the rental market all
at the same time. The greater choice of rental properties for tenants curtailed
rental growth/inflation. A slight softening of Clapham property prices has
compounded this. Figures from The Bank
of England suggested that first time buyers rose over the last 12 months as
some were more inclined to buy instead of rent. Together, these factors played
a part in the ongoing moderation of rental growth. Smaller landlords are
selling up, you see, fuelling FTBs’ appetite to get on the ladder. This won’t
be affecting the middle of the market or the larger rental properties’ capital
values.
The lead up to the General
Election in May didn’t help: after all people don’t like doubt and uncertainty.
So now that we have a mandate for going forward over the next 5 years hopefully
that has removed any stumbling blocks stopping tenants making the decision to
move home.
Whether it be ‘hard’ or
‘soft’ Brexit negotiations (and with the Election result the Tories might have
to be ‘softer’ on those negotiations) the simple fact is, we aren’t building
enough properties for us to live in. Both in Clapham, Greater London and the
wider UK, long-term population trends imply that rents will soon be growing
faster than inflation again. Look at the projections by the Office of National
Statistics.
Tenants will still require a vibrant and growing rental sector to deliver them housing options in a timely manner. As the population grows in Clapham, and further afield, any restriction to the supply of rental properties (brought about by poor returns for landlords) cannot be in the long-term best interest of tenants. Simply put rents must go up!
The fact is that I see this as a short-term blip
and rents will continue to grow in the coming years. With rents only accounting
for 29% of a tenants’ disposable income, the ability for most tenants to absorb
a rent increase does exist.
As always, if you are keen to start investing, or start doing something a bit more interesting with your current portfolio... Start the conversation on email. I'd love to meet you in person of course at this month's Clapham Property Meet, so do come along. Click here for tickets and more info.
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