I READ with interest that demand from tenants is set to rise for the next five years and rents will go up accordingly if the latest Building Foundations report by JLL is to be believed. Sounds good for landlords in the short term but what is the real picture here? I think it could be a time bomb ready to go off.
I agree that buying a residential home remains out of reach for many particularly young professionals and families. They simply cannot get mortgages because lending criteria is tight. Worse than that, they cannot afford the large 10%+ deposits needed. So they rent.
According to this survey, that you can read HERE, in 2013-2014 65% of all house moves were to private rented sector homes. That’s huge and the report says demand will continue, pushing prices up around 3% – 5% per year. As a private landlord that seems slightly unbelievable, over the last 10 years I have raised rents less that 1%. But the report also raises the concern over availability of private rented properties.
This is the time bomb ticking ready to go off.
It says 65% of rental properties are owned outright and shouldn’t be effected by the Summer Budget tax grab that is hitting mortgaged landlords. But wait a minute, that means 35% or 700,000 properties will be hit by the new tax laws. If even a small proportion, say 25% of those, are sold off, then that’s 175,000 less properties – nearly 10% less than current – will be available. In a time of growing demand and less supply.
Rental prices are going to go up by 3% – 5% easily on the back of that. If not more. I know after my own low increases, all of my tenants will be getting rent rises annually for the next 5-years as I look to mitigate costs of the new tax grab. And I am sure I will sell a couple of properties as well, so I can pay down the others and reduce the debt.
I will be reducing the supply and increasing the rents at a time of shortage. Along with just about every other landlord in the country, whether they own the property or mortgage it.
It means the crisis which is all about being able to afford a home to buy will continue and be joined by a new crisis – the inability to afford to rent. DSS tenants can forget it, unemployed will be stuffed. Only higher earning tenants with good credit history will be renting in the future and they will be paying more than ever. That’s not going to help with saving for a deposit to move up and buy.
And I do agree with the report that there will be no wholesale sell off and prices of residential property will continue to either plateau or rise. In fact private rented will be even more lucrative to wealthy investors as prices rise.
Less supply, more demand, higher taxes and no alternative are all combining to hit the lowest paid tenants. The time bomb when it goes off will hurt this aspirational group the hardest. Rather than hitting landlords with tax, the Government should be introducing more house building and rent raise rules to protect the most vulnerable and give everyone something to aspire to.
So as a landlord I am already considering cost cutting and profit maximisation to combat the new tax rules. I can certainly save on landlord insurance by using The Property Insurer and that’s a good place for any other landlords to start as well.