Why Landlords are seeing rising rents

Fewer rental properties and competing tenants are driving up yields. It’s unarguable that landlords have taken a bit of a beating over the past year or two, with changes to taxation, extra stamp duty, proposed restrictions on their right to take back possession of their own property, and the recent ban on tenant fees.

But if the most recent Private Rented Sector report from industry body ARLA Propertymark is to be believed, those very measures are driving rental yields up across the board, as some landlords have exited the market.

With demand for private rented properties from tenants showing no sign of diminishing (in fact, it continues to grow), reduced supply means that for those left in the market, income is only going one way.

“The rise in the number of tenants experiencing rent hikes is the highest we’ve ever had recorded, and rents will likely continue to rise as they must now cover the agent’s legitimate costs for setting up a tenancy,” said ARLA Propertymark chief executive David Cox.

“Competition for properties will be increasing as the supply of properties available to rent falls, but the demand from prospective tenants grows.  This ultimately pushes up rent prices on well-managed properties.”

Cox’s comments come on the back of a report showing a 15 percentage point rise in tenant demand, which combined with some landlords quitting the sector has led to a staggering 45 per cent of tenants facing rent rises year-on-year.

Ironically, the abolition of tenant fees is prompting a spike in demand, as prospective tenants who might have been living in the parental home because they were struggling to raise the up-front cash to pay for fees and large rent deposits are now feeling they can afford to move.  Initially that might be the case – but they are likely to face higher rents on an ongoing basis as a result.

For existing landlords, this may well mean rising yields, especially for well-maintained, well-presented properties (note that David Cox talked about rents rising in ‘well-managed properties’).  These, of course, are the homes which are most likely to have long-term tenants, where the issues of start-of-tenancy fees are less likely to be an issue anyway.

It may also encourage new investors to enter the market, attracted by higher yields, which go some way to offsetting the increased costs imposed by the various Government measures.  If new investors do appear, this can only be a good thing, as there is a real supply issue now, which means that many tenants are finding it harder to find suitable homes, at rents they can afford.

Catherine Hunt | Lettings Property Manager