Private rental sector gets a ‘perfect storm’ warning

RLA survey of almost 3,000 landlords shows 22% plan to sell as demand for rental homes rises.

Private sector tenants face a ‘perfect storm’ with the supply of homes to rent set to fall as demand increases.

According to a survey of almost 3,000 landlords published today (August 12), 22% plan to sell at least one of their properties over the next year – with just 18% planning to buy additional properties to rent.

The new data, published in the Residential Landlord Association’s (RLA) latest quarterly research, finds also that 33% of landlords have seen an increase in demand for homes to rent over the past three years.

Faced by an imbalance in the supply and demand for rental properties, 47% landlords indicated that they expected to increase rents over the next year.

And 35% indicated that the changes to mortgage interest relief which will see landlords taxed on their turnover rather than their profit, unlike all other businesses, was the main reason why rents might increase.

RLA chairman, Alan Ward, said: “As demand continues to increase for homes to rent, punitive tax changes are discouraging investment by the majority of good landlords who want to provide accommodation.

“Whilst efforts by the government to support institutional investment in the sector are welcome, this will remain a drop in the ocean.

“To meet demand, we need pro-growth taxation that actively supports and encourages the majority of landlords who are individuals providing good housing, to invest in the new homes to rent we so desperately need.”

Earlier this week, figures from the National Landlords Association (NLA) suggested landlords are losing confidence in their ability to rely on steady rental yields.

The figures showed that the proportion of landlords optimistic about their ability to rely on a steady rental yield has fallen 15% in the past two years – down from 64% in Q2 2015 to just under half (49%) in Q2 2017.

This drop-off in confidence coincides with the period since the announcement from the then chancellor George Osborne in July 2015 that mortgage interest relief would be removed for landlords.

However, the sentiment contrasts with actual rental yields achieved across the UK, which have remained fairly stable.

Over the past few years, the average yield has fluctuated around the 6% mark.

Regionally, landlords in the East Midlands currently generate the highest rental yields at 6.9%.

By contrast, landlords in outer London generate the lowest yields at 5%.

The ‘storm warning’ comes as property prices in many parts of the United Kingdom are stalling – with the average price of a home rising in July by 0.3% following recent declines in May, April, and March.

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