Renters will be paying more for their rented accommodation in 12 months’ time. That is the opinion expressed by respondents to Rightmove’s latest Consumer Confidence Survey.
Which reveals that nearly half (45%) of those who are currently renting and plan to rent in the next 12 months expect rents to be higher this time next year. This is the fifth consecutive quarter that we have seen an increase in the proportion of respondents expecting higher rents one year from now. By contrast, only 7% expect rental prices to be lower.
Miles Shipside, commercial director of Rightmove, comments:
“Many renters are caught in a ‘rental market crossfire’, taking financial hits from all directions. Not only can they not afford to buy, but they are about to feel the pinch as rents look set to rise too. As well as being negatively impacted by the new Government’s austerity measures, they are likely to have to compete harder and pay more for the dwindling choice of rented accommodation.
“Perversely, this survey shows that it is renters themselves who are calling 2010 the ‘Year of the Landlord’, and it looks set to be true of 2011 as well.”
The results are taken from responses to our quarterly question – “Where do you think average rents will be one year from now?” – providing a first major insight into the rental market outlook since the change in government and announcement of austerity measures. The results will be of even further interest to those investors in the buy-to-let market who now have the additional factor of higher Capital Gains Tax to work into their yield calculations.
The predicted increase in average rents comes against a backdrop of lettings agents reporting fewer new landlords and a shortage of available stock as tenants stay in properties longer. Rightmove has recorded a 20% fall in the number of available rental properties advertised in June this year compared to June 2009.
While 42% of respondents expressed the view that average rents would be more or less the same one year from now, 45%, the largest single group, are forecasting they will be higher. This is a significant shift in sentiment from a year ago.
In July 2009 33% foresaw an increase in average rents, meaning the numbers have swollen by 12 percentage points within a year. Conversely, 13% – around 1 in 8 – were forecasting that rents would drop a year ago, and this has reduced to just 7% – or around 1 in 15 – in this survey.
Shipside adds:
“Landlords should be wary that rents can only continue to move in an upwards direction if tenants can afford to pay more. The mortgage famine has meant fewer can buy, but the squeeze on incomes and the increased costs of living will put a ceiling on what many tenants can afford to pay. Local levels of economic buoyancy and supply and demand will be the main determining factors.”
The number of renters who would like to buy but cannot afford to remains high this quarter at nearly 6 in 10 (57%), almost unchanged on the 56% reported a year ago. However this has fallen from the 61% recorded last quarter, perhaps the result of a slight improvement in affordability caused by falling house prices, stamp duty exemptions and a marginal improvement in mortgage availability.
The lack of funding for house purchase also affects landlords looking to expand their portfolios. The increase in rental returns forecast in this survey may persuade those landlords with access to funds to look at expanding their stock. However, the increase in Capital Gains Tax announced in the recent budget may have dissuaded some investors from the property asset class.
Shipside comments:
“With some landlords put off by lack of access to finance or greater tax-take, those investors who can buy more are looking at improving returns and less competition. With a tougher sellers’ market forecast for the second half of 2010, investors may see the opportunity for a win-win situation as the cost of buying falls and rents increase.
“The longer-term demand outlook for landlords will also be enhanced if recent Government proposals force some better-off council house tenants to move into the private rented sector”.
Across the country there are some interesting regional differences in renters’ expectations for the year ahead. East Anglia is the only region where more than half (51%) of those surveyed anticipate that rents will increase over the next year, significantly higher than the 39% of people in the North East who were of that opinion.
London is home to the most price-pessimistic renters, with around 1 in 9 (11%) expecting rents to fall.
