Rental growth slowed in UK in 2016 but set to rise again in 2017, says lender report

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The average residential rent in the UK increased marginally in 2016 with growth of 1.12% over the year, the latest data shows, but growth is expected to rise in 2017.

Overall rental growth has slowed from 2.34% in same period of 2015 with rents in London down by 0.31%, according to the national rent review from buy to let lender Landbay.

This takes the national average rent paid to £1,188 per calendar month, an annual increase of £132, but the figure is inflated by London where rents reached a peak of £1,894 in April before falling in May.

The downward spiral in London has continued while in the rest of England rents are up 2% and in the UK as a whole 1.19% when London is excluded, taking the average to £749.

The East Midlands has seen the biggest annual rise at 2.6%, followed by the North West at 2.03% and Yorkshire and Humberside up 1.67%, with all these regions seeing rents grow at the fastest pace for at least five years.

According to John Goodall, chief executive officer of Landbay, change is behind the slowing of rental growth with the raft of regulatory, political and economic challenges affecting the buy to let sector in 2016.

‘But the nation has not been equally affected. London has been something of a millstone for the rest of the UK, and tenants will no doubt be relieved that rental pressure has eased since the referendum, but the fall in rents is unlikely to last, and we expect the tide will turn in 2017,’ he said.

He pointed out that tighter affordability lending controls for by to let borrowers from next month and the removal of mortgage interest tax relief later in the year look likely to restrict the supply of rental housing in 2017.

‘Tenants will have little choice but to compete for what properties are on offer. As a result we expect rents to rise faster than the pace of inflation next year, with growth tripling to 3% by the end of 2017,’ he added.

The research also looked at the effect of two major infrastructure projects in an around London, HS2 and Crossrail 2, and found that tenants close to the expected stations along both routes are already under intense rental pressure.

All of the key HS2 stations north of London have seen rental growth above the overall national average of 8.8% in the five years since the route was confirmed in January 2012.

Homes near Birmingham Curzon Street have seen rents rise by 23.7% and Birmingham growth of 22.4%, while in Leeds, Sheffield and Manchester rental growth of 15.3%, 15% and 14.5% respectively have outstripped the rest of the country. Only where the line connects to London at Old Oak Common and Euston, has rental growth been more subdued, at 4.8% and 1.6% respectively.

Similarly, tenants living near four of the six Crossrail 2 terminal stations have seen rent increases above the national average of 8.02% since the route was announced in February 2013. Shepperton up 14%, New Southgate up 11.8%, Hampton Court up 9.7% and Broxbourne up 25.3%, have all seen significant rental increases, while Chessington South and Epsom have seen more measured uplifts of 7.5% and 6.7%.

‘Rapidly rising rents may offset some additional costs for landlords, but if the situation becomes unsustainable this is not good for the housing market as a whole. House building along the route needs to be spread across all tenures, so those in the rental market aren’t squeezed out by the impacts of the sudden arrival of new transport infrastructure,’ Goodall concluded.

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