Confusion reigns in the UK residential letting market, with pressure groups of all persuasions scoring hits on a sector of the market that has sustained a seismic change. Here are a few points of reflection as the year draws to a close.
The market is growing (unequally) despite tax changes
Many would have expected there to be a decrease in the number of properties on the market, following moves to reduce mortgage interest rate relief and increase stamp duty on second homes. But research by Property Partners showed that new rental listings in November rose by nearly 7 per cent, the second successive month of growth. There are significant regional variations, though. London experienced a fall of just over 1 per cent, while four cities experienced triple-digit increases, including Bristol where listings increased by 163 per cent. At the other end of the scale, new listings in Derby dropped by a third, with only 123 new rentals coming to the market in November.
However, there might be trouble brewing, according to housebuyer Quick Move Now. New legislation due to come into effect in April 2018 will make it unlawful for a rented property to have a poor energy efficiency rating. Properties are rated between A (good) and G at the moment, but from 2018 they all need to have an E rating or better. Data from the Residential Landlords Association indicate that rented properties with an A rating make up less than 0.1 per cent of the total, with 35.5 per cent in the D category. Importantly, the F and G bands make up nearly 8 per cent of the total. These could be improved to make the minimum required efficiency level, but it would be another cost for landlords just at a time when the government has decided to stop funding energy efficiency improvements via its Green Deal.
These could be bleak times for letting agents
According to the Royal Institution of Chartered Surveyors, the number of UK households renting property rose from 2.3m in 2001 to 5.4m in 2014, and it predicts that by 2025 this will rise by a further 1.8m in a sector of the market that has seen private landlords faced with increased charges and fewer allowances.
One of those charges has already stirred up considerable controversy. From April 2017, letting agents will not be allowed to charge tenants fees to cover such items as references or credit and immigration checks, and the cost is likely to switch to the landlord, who then may attempt to recoup the cost by increasing the rent. The alternative would be to dispense with using letting agents altogether. According to the UK Association of Letting Agents, nearly half of landlords questioned would make such a move if their profits were being squeezed. And this could happen next year when new tax laws could push more than 400,000 landlords into a higher tax bracket.
There is another side to this argument, though. Research by Endsleigh, a specialist insurance provider for letting agents and landlords, suggests that using a letting agent could save a landlord £1,910 a year. The reasoning behind this is that working through an agent could reduce costly void periods, with three-quarters of landlords surveyed stating that their agent tended to help them find tenants, a process made easier by the local knowledge generated by the letting agent.
Changes mean higher rents, lower initial tax take
Landlord bashing has been a particularly popular pastime in the past couple of years, but there is a certain irony in the wake of increases in stamp duty land tax because estimated receipts have been downgraded by the Office of Budget Responsibility as a result of fewer residential transactions, partly due to the additional properties surcharge having a much greater forestalling effect than expected.
Looking ahead into 2017, landlords are likely to be more selective about the services that they pay for, which could lead to greater competition among letting agents, with signs that the internet-based agencies may start to gain a greater market share because they are cheaper. One thing that remains pretty clear is that with so many different calls on a landlord's income, rents are likely to keep rising. Belvoir Lettings (BLV), which operates a network of 300 franchised offices across the UK, is forecasting that rents will rise by 15 per cent in the next three years. Estate agent Savills (SVS) is thinking along much the same line, predicting that rents will rise 19 per cent on average by 2021; that's faster than house prices, which it forecasts will rise by 13 per cent over the same period. And in London it predicts that rents will rise by nearly 25 per cent.
Could there be a change of heart by the government? The housing white paper is due for release sometime in January, and calls for some of the new taxes on landlords to be rolled back have come from within the government itself. Four Conservative peers registered their disappointment that the new chancellor, Philip Hammond, had not addressed stamp duty in the Autumn Statement, describing it as an economically bad tax. However, with stamp duty land tax receipts forecast by the OBR to increase from £10.7bn in 2015-16 to £17.4bn in 2020-21, it will be hard work convincing the Treasury to make any changes.