The UK rental sector is a ‘ticking time bomb’ that could blow up on Buy to Let landlords looking to raise rents, new research reveals.
Findings released this month show tenants’ budgets already stretched to the limit with further price hikes ahead as Buy To Let landlords pass on the costs of tax changes and new Government legislation in the form of rent rises.
That, the report reveals, is a ‘ticking time bomb’ for the sector with tenants unable to afford even minor increases and landlords risking ‘resistance’.
Consistent rent rises in the UK housing market have put immense financial pressure on tenants, with renters in popular areas such as London now shelling out over two thirds of their average income, new research reveals.
Building society Kent Alliance conducted a survey that found 40% of landlords planned to raise their rents by an average of 5.6% within the next 6 months –three quarters of them blaming new Government legislation for the increase.
Research results released by the Residential Landlords Association also show a majority of landlords planning to raise rents on their tenants, with 56% looking to do so within the next 12 months.
Again, the majority blamed new Government legislation and changes to mortgage interest relief.
However, further research from property classifieds site TheHouseShop.com found that almost half (42%) of private renters would not be able to afford an increase of up to 5% in their monthly rent costs – confirming how precarious the UK rental market has become.
The YouGov survey of over 1000 renters and mortgage holders asked people to estimate the minimum percentage that their monthly mortgage or rent payments would have to increase before they became unaffordable. Shockingly, even an increase of up to 1% would be unaffordable for 16% of private tenants, demonstrating how many tenants are already paying the upper limit of what they can afford.
In comparison, homeowners (with mortgages only) were much more likely to be able to withstand smaller increases in their monthly payments: with just 3% saying they could not afford an increase of up to 1%, compared to the 16% of private renters who said the same.
Mortgage-holders were more able to absorb larger increases in monthly payments, with 24% saying monthly mortgage payments would have to increase by more than 20% before they became unaffordable, compared to just 7% of private tenants who said the same of their monthly rent payments.
Across both mortgage holders and renters, more than 1 in 5 (22%) said they could not afford an increase of up to 3% in their monthly housing costs.
More men (18%) than women (12%) said that housing costs would have to increase by more than 20% before they became unaffordable.
The 18 – 24 year olds were least likely to be able to absorb higher monthly increases, with just 6% selecting the more than 20% bracket – under half the average for all respondents.
Overall, 16% of this age group said that even an increase of up to 1% would not be affordable.
Comparing the survey results with average rental prices in the UK determines the potential monetary increase that corresponds to the percentage increases listed in the survey results.
Taking the average UK rent (excluding London) for July 2016 of £779 per month, the survey results suggest that 16% of private renters outside of London could not afford an increase of up to £7.79 per month. 27% would be unable to afford an increase of up to £23.37 per month, and almost half (43%) would struggle to afford an increase of up to £38.95 per month.
Co-founder of TheHouseShop.com Nick Marr said the figures were “totally at odds” with the various surveys and research papers showing that the majority of landlords are planning to raise rents on their tenants within the next 12 months.
“This demonstrates that there is a ticking time bomb in the private rental sector and with the number of people renting from private landlords already at a 30 year high – we could quickly find ourselves in a very precarious position with wide-ranging consequences for both tenants and landlords up and down the country,” he said.
Dan Wilson Craw, Policy Manager at Generation Rent, warned that landlords attempting to raise rents will be met with resistance from tenants.
“Rents are already taking a huge bite out of tenants’ incomes, so any attempts to raise them further will be met with resistance. With only a third of privately rented properties mortgaged, tenants should be prepared to negotiate hard on any attempts to raise rent, and remember that there are many landlords out there who won’t be affected by the tax changes.”