The number of tenants experiencing rent hikes has nearly doubled over the course of the year, as landlords feel the squeeze.
A combination of buy-to-let investors passing on costs and those selling up leaving less properties to rent has led to 46 per cent of tenants experiencing a rent hike this year, according to research from trade body Arla Propertymark.
It also claims that more than four fifths of letting agents think rent prices will rise next year, up from 65 per cent when agents were asked the same question last year.
Some four fifths of letting agents surveyed expect rents to continue to rise next year
The rise compares to 26 per cent last year and the trade body, which represents residential letting agents, claims that this rise is due to the impact of legislation introduced in June, which banned agents and landlords from charging rip-off fees to tenants.
It is equally likely, however, the landlords are passing on higher costs incurred by the reduction of mortgage interest tax relief.
Arla Propertymark claims that the introduction of the Tenant Fees Bill in June is responsible for the rent rises tenants are experiencing.
This ban capped deposits and outlawed most of the fees that letting agents charged to renters at the beginning of their tenancies.
The letting agency trade body now claims those costs have been passed onto landlords, who have in turn passed them onto tenants. However, this effect has been called into question by critics of letting agents – and data shows rents were rising faster in periods before the ban
David Cox, chief executive of Arla Propertymark said: ‘It’s no surprise that tenants have suffered intense rent increases this year.
‘We predicted this would happen as soon as the Government announced a ban on tenant fees, and since the ban came into force in June, rents costs have continued to spiral.
‘Additionally, due to the significant amount of legislation that landlords face, this year they have continued to exit the market, which coupled with Brexit uncertainty and the looming general election has left the sector in a state of despair.’
The claim that the ban on tenant fees is responsible for rent rises doesn’t hold up when existing data is taken into account, however.
The most recent figures available from the Office for National Statistics show that rents were actually rising faster before the ban was on the table.
The ONS found that rents had grown by 1.3 per cent in the year to October – more than 2018’s 0.9 per cent rise, but much lower than 2016’s 2.55 per cent rise and 2017’s 1.86 per cent rise.
There is a supply and demand issue in the rental market, and figures suggest that it’s getting worse.
The rate at which new tenants are entering the market is speeding up, while the number of new landlords is in decline.
This squeeze in supply and increase in demand naturally leads to higher rents.
It’s not the Tenant Fees Ban that has pushed landlords to leave the market, other reports suggest. Earlier this year, a Royal Institute for Chartered Surveyors report found that the number of new landlords entering the market has been in decline for 13 quarters, or just over three years – long before the Tenant Fees Ban was ever in the picture.
This indicates that buy-to-let investment appetite had already been falling due to other reasons – likely the mix of stringent tax and regulatory changes that have hit the sector in recent years.
In fact, the decline in new landlords entering the market occurred long before the Government floated the idea of a tenant fee ban.
ONS figures show that rents were rising faster before the tenant fees ban was introduced
Has the supply of rental accommodation gone up?
Despite the number of new landlords coming to market continuing to decline, the supply of rental accommodation per letting agent branch actually increased over the course of the year from 187 on average per branch to 197 this year.
Essential reading for buy-to-let landlords
Investing in property has got considerably tougher in recent years, but while some landlords are selling up there are still new investors getting into buy-to-let.
If you are considering property investing – or an investor who wants to know how to improve yours, read our guide:
It reached an annual high in March, when letting agents were managing on average 203 properties per branch.
This could suggest that while smaller portfolio landlords are selling up, their properties are being hoovered up by landlords with larger portfolios.
However, it could also indicate that there are now fewer letting agencies as a result of the tenant fees ban, which has left the surviving agencies to take on more properties.
David Cox added: ‘In our view, rental stock has gone down this year due to legislative changes and market conditions. While stock levels in agencies has risen – this is more a result of the industry contracting, rather than landlords coming into the market.
‘The tenant fees ban has forced some small independent agencies to sell their businesses to others. This means stock per branch is going up, but this is more a redistribution of existing stock than new stock.’
Increasing numbers of property investors look set to sell up in the face of falling profits
A third of landlords are looking to sell
Separate figures recently revealed that increasing numbers of property investors are looking to sell up in the face of falling profits.
A wide ranging study of around 2,000 landlord by the Residential Landlords Association found that a third of private landlords are looking to sell at least one property over the next year.
Just 13 per cent plan to purchase at least one property to rent out compared with 18 per cent two years ago.
The chief reasons given by landlords are recent tax changes, the RLA said.
The RLA’s David Smith said: ‘We warned the government that the tax increases they have imposed on landlords would be counter-productive and these figures show how right we were.
‘All they are achieving is driving landlords to leave the market, damaging investment and making it more difficult for tenants to find somewhere suitable to live.’
Some links in this article may be affiliate links. If you click on them we may earn a small commission. That helps us fund This Is Money, and keep it free to use. We do not write articles to promote products. We do not allow any commercial relationship to affect our editorial independence.