Rental Growth Expected to Rise in 2017

Rental Growth

Landlords can expect rental prices to rise over the course of 2017. The UK property market has stayed strong despite a turbulent year, with confidence remaining in the buy-to-let sector in particular.

With this in mind, it may be a good time to jump onto the property ladder or expand your portfolio, especially as mortgage interest rates remain low.

Positive Signs

Through 2016, rental growth did increase but at a slower rate from the year before. This was to be expected however, notably with the unexpected Brexit result stalling market movement for a short period.

Pound coins stacked

Overall rental growth shrunk from 2.34% to 1.12%, although recent forecasts by property lender Landbay show this trend will reverse in 2017. Prices should start to increase above the 3% mark again, especially in buy-to-let ‘hotspots’ across the country.

In monetary terms, the national average rent is currently around £1,188 per month, an increase of £132 from the same time last year. Landbay are confident this increase rate will rise again, boosted by a competitive rental sector.

The company’s chief executive, John Goodall, says that:

“Tenants will have little choice but to compete for what properties are on offer. As a result, we expect rents to rise faster than the pace of inflation next year, with growth tripling to 3% by the end of 2017.”

London Bubble

Although the UK as a whole still experienced growth in the rental market, albeit at a reduced rate, this couldn’t be said for London in 2016. Rents in the capital peaked in April before falling by -0.31% in May.

Tower bridge in London at night

Landlords may be advised to consider other regions with healthy rental yields before an investment. For example, the North West, East Midlands and Yorkshire have all been attracting interest due to their cheaper property and sustained demand.

Moving Forward

Estate agents and property speculators are confident that landlords will see rental yields improve as we move further into 2017. The slowdown in the previous 12 months was due to external factors rather than an underlying weakness in the market itself.

For example, as well as the ambiguity surrounding the EU Referendum result, there was an upsurge in buy-to-let purchases before the stamp duty levy was to be incurred in April. This led to an increased choice for tenants, thus pulling rents down. A similar event is not expected within the next 12 months.

Business man with pen and paper

The government is keen to tighten mortgage controls on landlords, and there will be a removal of interest relief on the buy-to-let sector, which will inadvertently cause rents to increase.

Looking at the UK market as a whole, many potential first-time buyers are more inclined to rent rather than buy. Tenants will thus have little choice but to compete in the same buy-to-let sector, another factor in driving up rental costs.

2016 witnessed a whole host of external interventions in the private rental sector, helping explain the slowdown in rents across the UK. However, the fact that growth still occurred shows the market remains a wise investment for prospective buy-to-let investors, especially as most commentators predict further rent rises of 2-3% throughout 2017.

 

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If you’d like to know more about being a landlord, you might find Changes to Lettings Agency Fees: What You Need to Know useful.