With approximately 300,000 rental properties currently on Rightmove, it is always interesting to speak with Sam Mitchell, head of lettings on the portal’s latest quarterly report.
Rental Values Outside of London Drop by 0.2%
National asking rents outside of London dropped by 0.2% in quarter 3, a relatively rare occurrence. This largely comes down to supply and a continuation of the patterns highlighted in Rightmove’s quarter 2 report. Essentially, the rush of property investors ahead of the stamp duty surcharge in April 2016 – particularly in Greater London and the South East – led to a residual increase of available rental stock accompanied by a slight slowdown in demand.
Anecdotal evidence suggests that landlords are still buying, albeit at a slower pace[1]. In recent years, the South East has seen a noticeable increase in rental property supply as investors seek better value outside of the capital. This would explain the most recent 2.3% quarterly drop that has predominantly “weighed down” the rest of the country. Early indications, however, point to a reversal of such patterns going forward – particularly as buy to let purchase activity continues to taper off and supply constricts. Yet the slowdown currently taking place in the South East and, to a lesser extent, Greater London is likely to ripple out into other parts of the country such as the North East, North West and East Midlands (which have seen quarter 3 growth at 2.6%, 1.3% and 1% respectively).
Rightmove’s Rental Trends Worth Noting
Rental activity tends to be busy all year round. Although the most recently reported drop was relatively rare, August/September typically sees the highest spike in the annual lettings cycle. This seasonality was largely borne out of the student market, which is when this demographic tends to rent out property the most. Many graduate jobs start during this period also. Rightmove’s portal data also regularly reports moderate rental demand rises in March.
Section 24 and Other Regulatory Reforms
The exodus of buy to let investors has yet to come to fruition following the first tranche of Section 24 of the Finance (No. 2) Act, Prudential Regulation Authority (PRA) borrowing restrictions and other regulatory reforms. It is worth noting that the effects of restricted relief on mortgage interest may take some time to filter into the market. In the 2017/18 tax year landlords with personally owned properties still have 75% mortgage interest relief in addition to a 20% credit on mortgage costs. Noticeable tax bill increases will therefore be truly felt from 2019 onwards. In turn, there may be some time before any negative effect on rental supply manifests.
Rental Listings Pace & Due Diligence for Buy to Let Property
Although the pace of new rental listings is broadly the same as 2017, the Rightmove autumn report demonstrates that compared to quarter 3 2016 properties are taking 8% longer to find a to find a tenant outside of London and 5% within. However, as mentioned above, these patterns are expected to change.
Obtaining specific data on validated rental prices remains difficult – there is no arbiter of definitive value parameters similar to “sold” prices via the Land Registry. However, on the rental search page users can check the “Include Let Agreed properties” to get a feel for which agents are successfully letting property. Lettings agents also have access to Rightmove Intel which will show market share of “let agreed” properties” so they can show landlords exactly who is letting property effectively.
From a broader perspective, keep a close ear to the ground, regularly communicate with lettings agents and network with other landlords. Furthermore, listing dates on adverts can be a good indicator of absorption speed. Rightmove users can also see if rents have been reduced.
The Threat of Build to Let for Small-Mid Sized Landlords
It is still too early to truly evaluate build to let’s real impact on the rental market. Increasingly being underwritten by the government, although such units are being developed at a notable pace, it should be noted that there are only tens of thousands being delivered annually in a broader market of approximately 5 million rental properties.
Units also remain heavily concentrated in urban areas – such as London, Birmingham and Manchester – and many are still at the planning and development stages. The accommodation is generally pitched at the premium rental market in terms of price per square foot and offer extra amenities, services etc. Consequently, while institutional private rented sector landlords may replace some smaller and “accidental” landlords exiting the market in the coming years, there will always be a demand for decent quality rental properties – particularly family sized and peripherally-located homes. See our post The Private Rented Sector (PRS) – Will the Trickle Become A Torrent? for some further insights into this topic.
Good Rental Property Presentation to the Market is Key
Ensuring rental properties are well presented is fundamental to derisking any landlord’s long-term holding strategy. Nowadays the demographic profiles of tenants are now much more varied and rental property seekers have more choice than ever before. Therefore, a good standard of refurbishment, high resolution internal / external photos and well-written descriptions all have important parts to play. Readers may be interested in seeing Sam’s interviews on the topics of dressing your rental property and writing the perfect property description with James Davies from online lettings service UPad.
[1] According to UK Finance, prior to April 1st 2016, approximately 1 in 10 transactions were for buy-to-let purposes. In August 2017, this figure dropped to 1 in 17. It is also worth mentioning that, in spite of the base rate rise, first time buyer activity looks likely to remain strong and subsequently have some effect on overall rental demand.
