In our latest blog post, Rightmove’s Head of Lettings, Sam Mitchel has taken over the Belvoir blog to discuss his predictions for the spring rental market.
Making a prediction about what is going to happen in Lettings Market is difficult at the best of times but at the moment it is particularly difficult. On the face of it a shortage of new stock coming onto the market, and record tenant numbers, should mean that Landlords should be pretty happy.
The government have set their stall out to help First Time buyers which I think we would all agree is a noble aim. They have however chosen to do this be penalising Landlords. Any Landlord completing on a property after April will have to pay an EXTRA 3% stamp duty. This is means if you are buying a rental investment at £500,000 you will have to pay and extra £15,000 on top of the £15,000 stamp duty that a first time buyer would have to pay. That’s £30,000 up front cash that investors will have to find that they will no longer be able to leverage. On top of this there are changes to the way Landlords can claim tax relief against their interest payments, changes to the wear and tear allowance, and the new Right to Rent legislation to contend with.
So what does all of this mean for the lettings market? One school of thought is that investors will swallow the stamp duty changes as they are in the market for the long term. I think that there is some degree of truth in this but there will undoubtedly be investors who are put off, particularly in London and the South East, where the cash burden will increase the most. Investors further north may well be put off more by the income tax changes that affect their margins.
What behaviours have we identified so far? Well it has been clear that there has been an increase in investor activity as purchasers rush to get deals through before the April deadline. At Rightmove we have seen an increase of 35% in the volume of Buy to Let enquires in the last 2 months compared to a year earlier.
Sales pipelines are full to the brim and it appears that conveyancing firms are going to struggle to get all the transactions processed in time so expect some deals to be renegotiated in April or to fall through entirely. We are anticipating that there will be an increase in supply of rental properties in April as these deals complete. It is a good time for Lettings Agents to be marketing to Landlords to take advantage of this boost.
Beyond April we are anticipating a decrease in the volume of available stock as investors shut up shop and hold their breath. Rents will increase so tenants will stay put for longer increasing the length of the average tenancy as they seek to avoid moving, again decreasing the number of available properties. Some Landlords spooked by the anti-landlord sentiment may decide enough is enough and start to sell up. This will further decrease available stock, meaning a further increase in rents.
The overall affect will be that rents will go up, ironically hitting the very people (first time buyers) that these policies were aimed at helping. If you are a landlord at the moment I would think very carefully before selling off any property as post April it will be tougher to expand your portfolio. With demand for rental property continuing to increase you could be well placed to see income increase significantly despite the new tax changes so Landlords who hold their nerve could end up being the big winners.