The rental sector could be reaching its affordability ceiling as wary landlords appear to be reining in rent rises amid concerns about the economy, new research suggests.
Rents across the country rose by an annual average of 3% in October – 1.5% down on the average six months ago. A tenant signing a new tenancy during October agreed to pay an average monthly rent of £902, 3pc above October 2015’s average of £875.
Latest data from the HomeLet Rental Index shows landlords appear to be doing what they can to balance the income they need to cover mortgage costs with a desire to secure regular, reliable tenants in affordable properties. The average tenant is staying in a property for just over 28 months, the longest duration for some time.
“While many landlords are facing higher costs themselves, including the impact of higher stamp duty on their property purchases since April, our data suggests that they have so far been cautious against a more uncertain economic environment,” said Martin Totty, HomeLet’s chief executive officer.
“We know wage growth has lagged rental price inflation and it could be that we are approaching an affordability ceiling whereby landlords can’t attract tenants able to afford higher rents.
“It’s also a fact the average duration of a tenancy is increasing and our data suggests this has now increased to 28 months on average: that might suggest landlords are valuing the security of a reliable tenant and accommodating their wish to remain in the property for longer. This is reflected in the rent asked at each anniversary.”
HomeLet noted that the contraction in the pace of rental price inflation was most marked in areas of the country where rents were previously rising most quickly.
HomeLet Rental Index regional variance figures for October 2016
In Greater London, rents on new tenancies rose by 2.5% over the year to October, having been increasing at a rate of more than 7% a year ago.
In the broader South-East region, rents rose at 2.7% on an annualised basis last month, down from above 4.3% this time last year.
Even in those areas of the country where annual rental price inflation is at its highest, rents fell back in October. Both the West Midlands, where rents were 5.1% higher than in October 2015, and the North West, where rents were 4.4% up, saw small falls compared to September.
Mr Totty warned that 2017 could be a bumpy ride for both tenants and landlords.
The prospect of higher inflation, interest rate rises, slowing wage growth and an uncertain economy will all affect how much tenants can afford to pay.
Equally, the constraint in the number of homes available to rent could also affect the market.
“This may lead to renewed rental price inflation as demand is likely to continue to exceed supply for some time, especially if home ownership remains an aspiration that is a longer way off for many renters,” added Mr Totty.
“With a period of greater economic uncertainty predicted, with potential impacts on inflation, interest rates and growth, rental property ownership presents both risks and rewards.”
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