It’s difficult times for Landlords. Not only are there regular law changes that need to be taken note of, the market has suffered too with a reduction in rents achieved. We look at the changing landscape for Landlords.
Tenant Fees Abolished
Big news in the rental market last year was the fourth quarter shock decision by Chancellor Philip Hammond to abolish letting agency fees in his Autumn statement.
This is, naturally, a highly contentious decision that was broadly welcomed by those on the tenant side of the argument and condemned by many landlords. At first glance, it’s easy to see why this was the case. On paper, and in the very short term, this would mean tenants save money, while landlords lose money.
But now the dust has settled the more thoughtful arguments for and against can be heard, the market on both sides are in a better position to answer the million-dollar question: does the abolishment of lettings agency fees mean rents will increase? An early statement from Generation Rent, a campaign group that lobbies for better privately rented homes said: “we don’t think it will [push up rents], mainly because rents are really just set by what people are prepared to pay in the market. Rents have been rising because demand has been so high.”
While David Cox, head of the Association of Residential Letting Agents, called the decision, which mirrors that of Scotland, “Draconian” adding that the decision “will have a profoundly negative impact on the rental market. This decision is a crowd-pleaser, which will not help renters in the long-term. All of the implications need to be taken in to account.” In fact last year ARLA commented that on average their members charge £202 for these fees per tenancy. This will come right off estate agencies bottom line and the argument is that it will be passed on to the Landlords who in turn will pass it on to the tenants. In todays market though, that may well be a difficult task.
In high-rental areas such as Fulham and other areas of South West London, agency fees are small compared with rental prices and average incomes, so it is less of an issue. And there are plenty of arguments to say that this is nothing more than a crowd-pleaser to distract from the wider issue of the chronic shortfall in housing that the UK suffers from. Nevertheless the money will need to come from somewhere, where exactly though time will tell.
The Fulham Rental Market
If you’re considering renting or re-letting your property you may have already discovered that the rental market here in Fulham has been affected by the Brexit result.
The busiest time of the market for rental properties is June and July as families attempt to re-locate and be in situ prior to the start of the school term in September. Of course last year this coincided almost perfectly with the uncertainty of the referendum result.
This meant that during an already busy time of year a further glut of property was dumped into the rental market from the sales market. The result was over-supply and hence reduction in prices. Based on figures collected in August 2016 we found this to be on average -7.1% in houses and -5.5% in flats in the immediate aftermath.
Selling has become a whole lot more difficult since the result and many owners, having not achieved the sales price they desire, have sensibly decided to put the property on ice in the rental market for the next year or two as the uncertainty passes. As previously mentioned this has already resulted in an immediate reduction in rental prices. We expect as 2017 unfolds that more property will come into the market, potentially reducing prices further still, or at the least holding prices down as high supply is maintained month on month.
Of course in any event, it has been an increasing trend for people to hang on to their investments in high value areas and only sell if they have to. This only compounds the issue. This is good news for tenants but it leaves property owners in Fulham in a difficult position especially when you consider the additional costs of letting. That, on top of the fact that maximum tax relief will drop from 45% and 40% to just 20% over the next few years, means that landlords will be working hard to recoup any losses in earnings.
Getting the most for your property will become more difficult as supply increases. It will be interesting to see how this year’s traditionally strong house rental market pans out in the summer. We may be in a position where more families are deciding to make the leap abroad at least for the short term adding more property to the rental market.
Conversely more affordable rents may encourage migration from the Eurozone. Anecdotal evidence suggests that there is an increase in movement in both directions.
In the meantime the rental market is going to continue to be tied to the sales market in a closer fashion. If Brexit negotiations re-instate a modicum of confidence into the market we may find that sellers get re-invigorated. It might even result in some landlords looking back to the sales market, if the opportunity for a fair price arises.
If you are letting, there are many things you can do to ensure that tenants get the good value they’re looking for. This doesn’t need to translate to a lower rent. The emphasis will be ensuring your property is competing in this aggressive market place. Imagine yourself as a tenant and look at similar properties, what can you do to be more certain that yours comes out on top. It is cliché but getting the right advice is going to become even more valuable.
As expected everything hinges around the coming negotiations. Excessive rents will struggle to be achieved for the time being although the aspect may improve as more information on Brexit unravels. The property market is a fickle beast in any event, easily affected by the media on even a weekly basis, so it’s fair to say, with some certainty, that the outlook is going to be uncertain. Watch this space
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