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Landlords to reduce portfolios despite record asking rents

Article Posted - 7th November 2019

New research from Rightmove showed record asking rents in all but two regions, as fewer new rental properties come on the market. Rightmove's research chimes with the data from the NLA's latest quarterly landlord survey, which revealed that 24 per cent of landlords are looking to reduce their portfolio size in the next year.

This figure has edged down slightly from a record high of 26 per cent in quarter two of 2019. Landlords with larger portfolios are the most likely to be looking to sell up, with close to four in 10 landlords planning on reducing the size of their portfolio in the next year.

Since 2016, landlords have had to grapple with a stream of new tax and policy changes. The introduction of a stamp duty surcharge on second homes, phasing out of the reduction in tax relief and the ban on tenant fees (which some letting agents are now passing on in part to landlords), have all discouraged landlords from further investment in the private rented sector.

Rightmove says there was a short-term flood of rental properties throughout 2016 and into 2017 caused by landlords who bought before the stamp duty surcharge came in, but that stock has now dissipated and is currently 13 per cent lower than the same period in 2015 before any of these changes came in.

When Rightmove asked landlords about their future plans, almost a quarter of landlords (24 per cent) said they were planning to sell at least one property from their current portfolio. This is made up of 13 per cent who said they will be decreasing their portfolio, and one in 10 (11 per cent) who said they would be selling all of their rental properties. The most common reasons for selling up were attributed to the changes in legislation, including the recent tax relief changes and the ban on tenant fees leading to an increase in their costs.

Rightmove's Commercial Director and housing market analyst Miles Shipside said: “There are a number of forces at play in the current rental market, all leading to record rents for tenants and fewer homes to choose from, yet demand remains strong. Worryingly for tenants there are signs that the stock shortage may worsen if some landlords follow through with their plans to sell up, though an increase in plans for build-to-rent properties may help to fill some of the gap. The overall feeling among those landlords who are planning to exit the market is one of frustration, with many telling us that the tax changes mean it's no longer financially attractive to keep their properties.”

Rightmove's data showed that asking rents outside London are at a peak of £828 per calendar month, seeing the biggest quarterly jump in rents at this time of year since 2015. In London, rents are at a record of £2,104 per calendar month – the biggest quarterly jump at this time of year since Rightmove began recording the data. These jumps, the online portal said, have led to an annual rate of growth of 3.2 per cent outside London, the highest since 2016, and an annual rate of 5.6 per cent in London. Scotland and the North East are the only regional markets not to have seen record asking rents this quarter.

The NLA's quarterly data revealed that the average rental yield achieved rose to 5.6 per cent, up marginally from the nine-year low recorded in the second quarter of 2019. There is a 1 per cent differential between the highest yield generating regions, the East Midlands and Yorkshire and Humber at 6.1 per cent, and the lowest, central London at 5.1 per cent.

Yet despite the record rental increases, NLA found that confidence in the prospects for the UK private rental sector and landlords' own lettings business were both at an all-time low. Four of the five landlord confidence indicators have fallen to their lowest level for seven years, with the exception of prospects for rental yields at just 1 per cent above the all-time low recorded in the second quarter of 2019.

“What we really need now is more properties available to rent. Rising rents may tempt some landlords back in, but momentum is currently to downsize portfolios in spite of the prospect of increasing yields,” said Rightmove's Shipside. 

Clynton Nel, Director at London estate agent JOHNS&CO, said: “Increases to stamp duty along with ever-increasing and more onerous legislation and compliance on buy-to-let landlords has resulted in many private and accidental landlords exiting the market or looking for cheaper ways to let their property. This has had a knock-on impact on tenants insofar as fewer rental properties means higher rents.”

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