UK Rental Market Update: Insights into the Current Landscape

Welcome to our Property Market blog, where we provide you with comprehensive insights into the current trends shaping the UK housing market. In this edition, we'll dive into key headlines of the current Rental Market - including supply and demand dynamics, challenges faced by investors, rental growth versus earnings, and regional snapshots. Let's explore the latest findings!

 

- Annual rental inflation for new lets in the UK remains high at an average of 11%, slightly down from 12.3% in mid-2022.

- Rental growth continues to outpace earnings growth, raising concerns about affordability for renters.

- The demand for rental properties remains significantly higher than the five-year average, while the supply of privately rented homes in Great Britain has seen a minimal 1% increase over five years.

 

Supply and Demand Imbalance:

- The stock of homes available for rent is 33% below the five-year average, highlighting the significant supply and demand imbalance.

- According to the recent ARLA Propertymark Report, the demand for rental properties recorded by member agents in April 2023 was 24% higher than the previous year, further exacerbating the supply shortage.

- Factors such as rapid growth in overseas students and high net immigration contribute to sustained demand for rental properties. This follows the Government shake-up of Visa rules in 2021 to help attract more skilled workers to the UK.

 

Challenges for Investors:

- The number of privately rented homes has only increased by 1% since 2016, as new investment is offset by properties leaving the rental sector.

- Tax changes, growing regulations, higher borrowing costs, and tighter lending criteria have prompted landlords to reassess their portfolios and investment strategies.

- Mortgage rates have increased, impacting the equity or deposit levels required for new buy-to-let purchases, along with stricter lending criteria and stress tests.

 

Rental Growth and Existing Tenancies:

- Existing tenancies have seen rental increases at an average of 4.4%, significantly lower than the market average for new tenancies.

- Landlords are encouraged to review their rents periodically, especially considering challenges such as tax changes and higher mortgage rates, as rent increases can positively impact investments.

 

Breakdown of the Private Rental Market:

- The core private rented sector, comprising long-term lets, accounts for 66% of the market, offering lower hassle and workload.

- Sub-sectors such as holiday and short lets or HMOs may provide higher yields but come with additional costs, workload, and regulations.

 

Regional Snapshot:

- In the West Midlands region, average rents have seen a year-on-year increase of just under 10%, with Birmingham ranking among the top five cities for rental growth.

- Manchester, Edinburgh, Glasgow, and Nottingham also demonstrate strong growth in rental prices.

 

Conclusion:

The UK rental market continues to experience robust demand, outpacing earnings growth and raising concerns about affordability. The supply shortage persists, presenting challenges for both tenants and landlords. Investors face changing dynamics, including higher mortgage rates and stricter lending criteria. Regular rent reviews are encouraged to ensure investments remain financially viable.

Thank you for reading our Rental Market Update blog. If you are a landlord or property investor and would like some advice or to share your views, please contact me anytime...

 

Ali Durrant MARLA

Director of Concentric Sales & Lettings 

ali@concentricproperty.co.uk

UK Sales Market Update

Welcome to our Property Market blog, where we provide you with insightful information on the latest trends in the housing market. In this edition, we'll focus on the sales market, highlighting key statistics and offering valuable insights for both buyers and sellers.

 

1. Transaction Stats:

In January 2023, there was a 10% reduction in property sales recorded year on year, while new home purchases saw a 9% rise in completions. Mortgage approvals experienced a significant 46% reduction, with gross lending down approximately 7%. The decrease in mortgage approvals from the second half of the previous year largely explains the significant difference in lending statistics.

 

2. Buyer Demand:

According to the latest ARLA Housing Insight Report, there was a 30% fall in the number of prospective buyers registered across member branches in April 2023 compared to April 2022. Additionally, member branches reported a 70% increase in properties available for sale year-on-year. These figures indicate a drop in buyer demand, likely influenced by higher mortgage rates and economic challenges affecting affordability.

 

3. Market Activity and Pricing:

Rightmove reported that agreed sales numbers are currently just 3% behind the pre-pandemic market of 2019. The average price of properties coming to the market experienced a 1.8% month-on-month increase in May, reflecting robust activity levels and confidence. Sales agreed in May showed positive growth, and the level of negotiation from the asking price to the sale agreed price remained steady at around 3%.

 

4. Mortgage Rates and Affordability:

Despite an increase in the Bank of England base rate, mortgage rates have remained steady. The average 5-year fixed rate with a 15% deposit is now 4.56%, significantly lower than the 5.89% recorded last October. This decrease in mortgage rates contributes to maintaining home mover confidence in the market outlook.

 

5. House Price Growth and Market Activity:

The Zoopla house price index reveals a year-on-year price growth of 1.9%, the lowest in recent times compared to the 9.6% recorded a year ago. Prices have fallen by an average of 1.3% in the last 6 months due to higher mortgage rates and rising living costs. However, buyer confidence has improved, resulting in an increase in sales agreed, primarily driven by falling mortgage rates during the Spring.

 

Regional Property Price Movements:

The West Midlands region has seen year-on-year price growth of 3.5%, surpassing the national average of 1.9%. Birmingham ranks second among major cities, with a growth rate of 3.8%, just behind Nottingham at 3.9%. These figures indicate a significant difference compared to last April when the year-on-year price increase approached 10%.

 

The Outlook for the Sales Market:

Market activity in the UK sales market remains comparable to pre-pandemic levels. However, predictions suggest that mortgage rates may increase in the second half of the year, impacting affordability and pricing. It is anticipated that the year-end may see approximately 20% fewer transactions than the previous year. Sensible and realistic pricing is crucial for sellers, while buyers should not be discouraged as long as the numbers align. As the year progresses, increased stock levels may provide negotiation opportunities.

 

Conclusion:

The UK sales market demonstrates resilience, with activity levels approaching pre-pandemic norms. Understanding market dynamics, considering pricing strategies, and staying updated on mortgage rate changes are vital for both buyers and sellers. Seek professional advice and remain adaptable to navigate the ever-evolving property market successfully.

Thank you for reading

170 Pieces of Legislation You Need To Know

Did you know that there are 170 pieces of different legislation you must adhere to as a landlord?

If you’d like to learn more about the laws and regulations that apply to you, read on.

Here at Concentric Sales and Lettings, we are dedicated to getting you the latest information on legislation updates as well as providing the guidance you need to be successful, safe and compliant as a landlord. 

In this blog we’re going to discuss some of the most important pieces of legislation that you should be aware of as a landlord. This is by no means an exhaustive list but is intended as something of a primer to the laws governing our industry.

 

The Housing Act of 1988

In 1988, the Housing Act came into being and completely revolutionised the private rented industry in the UK. The new law gave greater opportunities to landlords and drove the private rented sector into an economic boom. For the first time, private landlords were able to secure possession of their property in a legally protected manner. Before 1988, this was simply not possible. It was also thanks to this law the Assured Shorthold Tenancy (AST) was born.

This is the same AST we all know and use for so many of our lettings. The Housing Act gave landlords 17 grounds for gaining possession of their property, giving unprecedented levels of opportunity for landlords to evict should the need arise. The law also made it possible for you to secure possession of your property without waiting after two successions of your property to family members. 

Overall, the Housing Act of 1988 dramatically changed the letting world as we knew it. Not only did landlords receive easier access to evict tenants that were not paying their rent, but Section 21 was introduced. This law created a non-default notice that gave landlords the opportunity to serve notice on their tenants, giving them a fixed period of notice before they needed to give up possession of the property.

 

Laws To Keep You And Your Tenants Safe

The Housing Act is not the only piece of legislation governing the private rented sector, but it is one of the most important. Other important pieces of legislation include gas safety laws, deposit registration laws, smoke and carbon monoxide detector requirements, the Accommodations Agencies Act, the Consumer Protection Act of 1987; the list truly is endless. As we stated previously, there are over 170 pieces of legislation that you need to be aware of so that you remain in compliance.

Abiding by these rules and regulations also keeps you and your tenants safe. For example, Section 11 of the Landlords and Tenant Act of 1985 details your repairing obligations as a landlord. You may have also heard of HHSRS, which is a piece of legislation describing 29 different hazards that you need to be aware of and assess. The central purpose of these laws is to answer the question, is your property fit for human habitation?

The Homes (Fitness for Huan Habitation) act 2018 was passed into law in 2019 and was yet another important piece of legislation surrounding the safety and condition of your property.

 

Crucial Procedural Laws

These laws have impacted the way we, as landlords, do our job. For instance, the Housing Act of 2004 is a landlord law that created new rules regarding how we as landlords handle our tenant’s deposits. HMOs are a legally recognized entity with a whole body of laws that you need to be aware of if you are involved in one. The Immigration Act of 2016 is another very important law. Landlords, did you know that you have to check if your potential tenant has the right to rent in the UK before renting your property to them? The law requires that you be able to prove that you carried out these checks. Sections 47 and 48 of the Landlord and Tenant Act of 1985 are two pieces of landlord legislation that require you, as the landlord, to provide your address to your tenants. There are also Minimum Energy Efficiency Standards, abbreviated to MEES, that are in place. These require all of your properties currently rented to be operating at an “E” rating or above in order to be compliant.

 

How To Be Compliant As A Landlord

In order to be compliant with all legislation impacting landlords, the best thing to do is to know the laws. Take some time to do your research and get to know the laws in your community. We have only scratched the surface of the rules and regulations you have to abide by as a landlord. Additionally, certain properties will be impacted by specific, local rules that you’ll also have to be aware of.

Sometimes, it can seem like the list of pieces of legislation is endless, but we hope you’ve found this content informative and helpful. If you did, please check out more of our content here on our blog, and feel free to visit our social media channels. If you’d like to learn more, we host a quarterly online seminar that you can join to get the latest updates on the regulations and legislations that matter to you.

Register your space on the next page.

Are Your Tenants Behaving In a Tenant Like Manner?

Where does the term ‘tenant like manner’ come from?

Back in 1953, there was a case brought to court to settle a dispute between a landlord and a tenant. The landlord brought forward a case that on vacating the property, it was left in such a state of demise that he believed that the tenant should be held responsible for cost of repairs. The argument was that there are some jobs which should not fall under the care of the landlord, but in fact should be taken care of as a matter of course while the tenant occupies the property.

When the judgment was made, the term ‘tenant like manner’ was phrased, and it was made clear that a tenant has a responsibility to treat a property with care and respect, and that they must ‘take proper care of the place’.

 

What are the tenants’ responsibilities in behaving in a ‘tenant-like manner’?

Let’s firstly put it out there that the majority of tenants are happy to take responsibility for basic jobs around the property. But it is worth noting that there are a very many complaints which could be avoided, if the tenants were fully aware of what their responsibilities are while they occupy a property.

A good example of this is damp. I’d gauge that there a very few landlords who haven’t at some point had a tenant complain about damp in a property, but did you know that the majority of these issues are, in fact, caused by the tenant?

That might surprise you – but there are numerous cases where the tenant causes damp issues inadvertently by drying washing indoors, failing to properly ventilate bathrooms and kitchens, not making use of ventilation fans etc.

There are many ‘little jobs’ which are simple for the tenant to take care of, and which go a long way in maintaining the comfort and structure of the property. Those expected of the tenant under the law are:

 

There are some jobs which are beyond my tenants’ expertise – what if they refuse or cannot do them?

OK, so you’ll recognise that jobs such as re-pressurising the boiler, dealing with pests, or unblocking drains might not be such simple tasks for the average tenant. But it’s important that they recognise that these tasks are not the responsibility of the landlord, and so should make efforts to find a tradesman or handyman who might assist with these kinds of jobs. Generally, as a tenant, they should be expected to deal with tasks which they would comfortably be able to handle if the property were their own – if it’s something that as a property owner, they wouldn’t pay someone else to do, then it’s feasible that they can take on those kinds of things themselves.

As a landlord, you should also make efforts to ensure that the tenant is well equipped to deal with things such as re-pressurising the boiler and bleeding radiators, and should provide full instructions for those kinds of tasks. Then it is up to the tenant to decide if he is comfortable in doing those, or whether to ask for assistance.

There are some items on that list that I’d happily do for my tenants – am I wrong?

It’s true that there are some landlords out there, particularly those who have reasonably small portfolios, who are quite happy to be on call for sorting out small jobs for their tenants. And of course, that’s fine. But don’t let it become an additional expense to you – remember that even those little jobs add up. Your tenants should always know that you’re doing these things out of kindness and concern for the upkeep of your property.

If you are looking to keep all your properties safe by staying compliant with current legislation, click HERE to download our FREE compliance checklist.

Article 4 and HMO’s

What exactly is Article 4?

In simple terms, Article 4’s were put in place a few years ago to manage the growth of HMO units in certain areas, and have been rolled out by councils across the country recently. If a proposed HMO is to be in an Article 4 designated area, then any would be HMO landlords would have to seek planning consent under Article 4 in order to be able to set up and operate a HMO in that area.

The other thing to consider however if you are planning to buy, set up or convert a property to a HMO, is whether the property needs a license. 

The rules around licensing have changed since October 2018, and as a result many landlords who previously did not need a license, now dounaffected are now classed as HMO.

Am I a HMO landlord?

It seems like a silly question, but there are surprising number of landlords who are renting out licenseable HMO properties without even being aware of it. We covered the subject in our previous post here, but it’s worth re-visiting some of the facts of what we mean when we refer to a HMO.

If you are renting a property to three or more people, and at least one of those people is unrelated, then it’s likely that you have a HMO unit and many new rules will apply to you. That’s because unless all three members of a household are  related or living as one family unit, they cannot be classed as one household. Confused? Let us explain in a bit more depth.

My brother’s uncle’s sister’s friend

Let’s say that you’ve rented your house out to a married couple. That couple are classed as family, and are therefore one household. You wouldn’t need a licence for that. Incidentally, if the couple were unmarried, they would still be classed as such providing they are living in the property as a couple, and not as friends.

Now, the wife has a friend who’s looking for a room. If she moves in, then she is classed as a household on her own. So therefore, you now have two separate households living under one roof, and under the HMO rules this is deemed as a HMO unit. 

Changes to licensing

The BIG change however is that previously you only needed a licence if your property was three or more storeys and 5 or more people residing... That’s no longer the case. You will now need a licence even if your property is a two-storey dwelling or a self-contained flat, bedsit or bungalow. (basically the 3 storey element has been removed) 

How can I check if my property needs a licence?

If you’re still unsure, you can easily check by contacting your local authority, or checking their website for information. But because some of the legislation is relatively new, always make sure that you get any verbal confirmation affirmed in writing – you don’t want to be caught out by being given the wrong information!

Other requirements

Once you’ve established that your property is in fact a HMO, and that you need to apply for the licence, there will be other criteria which will need to be met. HMO’s are required to comply with certain regulations, under things like fire safety, gas safety, smoke alarms fire doors and a number of other things. If you speak to your local council, they will be able to advise on the criteria you need before you apply. It’s vitally important that you ensure that all of these measures are in place, as if you fall foul to any of the required criteria, you could be facing some quite hefty fines.

Concentric Compliance Director Dawn Bennett discusses Article 4 and HMO's at a recent landlord seminar event:

Could Brexit be good news for landlords?

2019 is proving to be an unpredictable market for properties in the UK. As with many other industries, people are hitting pause in anticipation of the outcome of the Brexit deal. Evidence suggests that over the past few years, people putting a mortgage down on a property has fallen, and continues to do so, while people renting privately is rising, at roughly the same rate.

This of course, is not all down to the Brexit effect – the rise of house prices over the past decade will always determine the number of house sales, in part because there have been some major changes in both economy and regulations, making it harder for the new generation of 20-somethings to make their way onto the ladder. But it seems, those same threats are encouraging people to take the less risky, and more flexible option, of renting. And it seems logical that the fear of Brexit has had quite an impact.

The 2019 rentals market

Property experts predict that we will see these trends continue into 2019, which will see the market slow down at a steady rate. In contrast, this proves to be a positive for property investors and landlords, because those same experts are predicting that the uncertainty of Brexit will further fuel the huge demand for rentals in the UK, particularly in the private sector.

Figures show that across England and Wales, the number of rentals has risen by 17.4% year on year, and 24.6% in London.

It seems then, that Brexit is having no effect on the rentals market as a whole – demand is still growing for good rental properties and looks set to continue to do so.

Ongoing shortages

Contrary to the belief that rentals will begin to decline following less migration from Europe post-Brexit, there is still a huge shortage of affordable rental housing due to the ongoing chronic undersupply and difficulty in getting a mortgage due to new restrictions. This doesn’t appear likely to let up, as Government intervention makes it more and more difficult to purchase property in the UK with new legislations and tax changes.

There is more demand than ever for rentals, and that demand has increased since this time last year, and some experts are advising that property developers take advantage of the current climate and levelling house prices while they can. We are still in the very strong situation whereby the income from rents is significantly more than the cost of buying a property even with a mortgage attached.

The next five years

Along with the increase in the number of rentals, it has been predicted that due to the sheer demand of rental properties, the price of rents will increase by around 15% in the next five years. This is from a report published by the Royal Institute of Chartered Surveyors.

It ties in with the increase in demand, of course, but also follows the impact of taxes in the buy-to-let sector, which is affecting landlords decisions in buying property. This in turn is creating a further shortfall, which is having a knock on effect on the rental demand.

It seems evident that for those landlords and property developers who are able to stand firm through the current uncertainty, there could be rewards to be had, as there will never be a shortage of people looking for properties to rent.

Sally Lawson CEO of Concentric says, “after 3 decades in the rental sector and at least 2 recessions, the rental sector has held firm, never waning, with steady growth every year since 1987, and predicted to grow from being 20% of the entire uk housing stock to over 50% by 2050, I see no signs of this trend changing in the near future, Brexit or no Brexit, people have to live somewhere”

Should I concentrate on capital appreciation in buy-to-let?

The growth of the buy-to-let market isn’t slowing down, as the housing shortage in the UK continues. Because of this, you now see a lot of information out there to help landlords get the best rental yields for their properties, but interestingly there is less information on capital appreciation. More associated with buyers and vendors, capital appreciation is also a factor that landlords need to consider when they invest in property, now more than ever.

What is capital appreciation?
In comparison to cash flow, which is money that goes straight into your back pocket, capital appreciation is the profit made on an asset that has not yet been liquidated. Many investors use property for appreciation due to being one of the more reliable assets.

Investing in private rental properties is more often than not a longer-term commitment compared to refurbishment projects and other types of property investment. Therefore, it’s in a landlord’s best interest to look into the capital appreciation potential of a property for when they or their successor eventually sells them. It’s not worth investing in a rental property only to lose capital once you leave the sector.

Why should you think about capital appreciation? 
If you’re looking to boost your personal income – maybe you’d like to add more to the retirement fund or raise more money to help out family -  then it would be wise to consider capital appreciation opportunities.

Once you reach pension age, you could stand to have a good nest egg to fall back on, especially since properties in the UK are increasing on average by 24% in value over 10 years.

Things to consider for capital appreciation

1)    Buy an asset you can actually liquidate. It’s okay investing in properties to create some steady cash flow, but if the property is difficult to sell or in a poor location, then you could end up losing more capital than you earned overall. This is called capital depreciation. Look for properties in up and coming areas or areas going through regeneration. According to statistics, you could stand to gain up to 25% in value on a property over just 5 years if a new supermarket is built in the area.

2)    Budget correctly and be aware of your net income. Only invest in properties you can genuinely afford – this includes décor and furnishing, maintenance and repairs, mortgage fees, taxation and utilities that match its size and build.  The mortgage tax relief cuts introduced by the government last year only heighten the need for you to plan your budget carefully. Pushing yourself to invest in properties that generate a large gross income will end badly if you can’t manage the financial upkeep. You could end up cancelling out any rental yield you make for a number of years, but even worse, you could end up in debt with a need to liquidate quickly. You want capital appreciation to boost your income, not make up for your losses.

3)    Be a good landlord. Don’t allow your property to become run-down and filled with bad tenants; it could influence the reputation its area has and thus decrease its market value. Looking after your tenants and ensuring a well-kempt property is heavily linked to how much the property will be worth over time. 

If you’d like to focus on capital appreciation when making a buy-to-let investment, a consultation with a local property expert is highly recommended. Many of our local Concentric branches offer buy-to-let advisory workshops, where you can get advice and guidance tailored specifically to you. Click HERE to find out more.

The Election of Donald Trump: Will it affect the UK Property Market?

If you were to sum up 2016, in one word, what would you say? It’s certainly been full of surprises. Britain rocked the country by voting to leave the EU, David Bowie passed away and the world is still trying to get it’s head around the fact that Donald Trump was elected President of America.

It’s an unusual year to say the least.

However, whenever something new comes to fruition, the first thing that run through our heads, is whether or not it will affect us, and more importantly, how. And when it comes to the UK property market, there is a chance that the election of Trump could in fact result in an influx of companies and investors heading to the UK from Europe, China and the Middle East.

In the path of uncertainty and instability, people tend to consider their options. Facing both the unknown and an uncertain market, investors could feel reluctant to invest on American soil. And when it comes to property, central London property is certainly appealing.

Simon Tollit, central London’s Sales Director of Sotheby’s International Realty is of the opinion that Trump’s election will actually increase investment into the Uk’s property market, with a particular emphasis on London. It’s a sound choice for anyone who is destabilized by the idea of a new elected party and the possibility of policy changes.

Interestingly, despite property prices rising by 13% in the UK, they’ve actually fallen 10% for those investing with the dollar. Combine this with the appeal of historic London, steeped in culture and opportunity, and it’s easy to see why the UK’s capital is such a desirable option.

Back when Brexit was all kicking off, President Obama warned the UK that leaving Europe would be detrimental for trade deals However, Trump has suggested the opposite, publicly showing his support for Brexit, which means favourable trade deals could benefit the UK’s property Market.

Charles Curran, the Principal of Maskells, is also of the opinion that the election will benefit the UK property market.

He stated: “Sterling has already strengthened against the US dollar which, notwithstanding a potential [interest rate] hike in the US in December, may start reducing some of the post Brexit inflationary pressure in the UK. This is good for mortgage payers as it reduces the likelihood of the Bank of England’s hand being forced to increase rates to counter a strong dollar; the currency in which many of imported products are priced.”

However, London house prices could in fact rise until policies have been put in place by Trump. It’s also important to note that it’s impossible to say for definite the impact the election will have on the UK’s property market.

For landlords though, it’s food for thought.