An exodus of landlords from the buy let market in Britain is causing an acute shortage of available properties to rent, particularly in parts of London, a new analysis shows.
The dearth of rental properties is a nationwide issue but is now particularly severe in the capital, where there has been a 20% drop in the number of properties available to rent over the last 12 months.
Over the same period there has been a 12% fall in the number of available rental properties across the country and this reduction in supply is leading to a surge in rents, especially in wealthier parts of London, according to the research from property website Home.co.uk.
For example, in the London borough of Westminster the average monthly rent now stands at £5,292, up 24% on June 2017 and over the last 12 months the number of properties available to rent in this borough has fallen by 447 to 2,673, according to the analysis.
Rents have also risen steeply in Kensington and Chelsea where the average monthly rent is £5,502, an increase of 14.7% over the last year. This borough has also seen a dramatic fall in supply of 427 properties over the same time, taking June 2018’s tally to 1,584.
Strong demand and falling supply is ensuring that properties in such areas are still highly sought after, even at their premium rental prices, the report points out. In both these boroughs the latest data shows that the typical rental property is on the market for just 39 days.
The report also points out that so far such rent hikes have not yet translated into high yields for landlords. The gross rental yield in Westminster is still only around 3%. However, the trend is upwards and those landlords that continue to let their properties in these boroughs will soon start to benefit from improved returns as rents keep shooting up.
‘Rents might be rising but, at the same time, underlying capital values are falling. So much so, in fact, that real yields are negative overall. The typical asking price for a flat in Westminster has dropped 7% over the last year and this negative trend is a clear driver for landlords to exit while they still can,’ said Home.co.uk director Doug Shephard.
He explained that since April 2017 individual buy to let investors have been unable to offset all their mortgage interest against their profits and within the next two years none of this interest will be tax deductible.
Stamp duty changes came into force in 2016, which means anyone purchasing a buy to let property or second home must pay an extra 3% in stamp duty and Right to Rent legislation, rolled out nationally in 2016, now means that landlords must check the immigration status of their tenants or face unlimited fines or even a prison sentence.
‘The current situation is particularly dire for tenants, who are set to continue to face increasing competition for good quality properties and rising rents. Government red tape and higher taxation in the lettings market has triggered forced sales by landlords,’ Shephard said.
‘Moreover, this additional supply is now negatively impacting on capital values. Vendor landlords have done their maths and they know that if they continue to let the property, even with a rent hike, they will be losing money overall,’ he added.
‘The problem is, though, that the private rented sector (PRS) constitutes 20% of the housing stock, the majority of which is owned by landlords with small portfolios. Negative sentiment in this sector is certainly sufficient to turn confidence in the wider property market to the downside, thereby creating misery for all, especially those wishing to rent,’ he concluded.
