RENTSHIELD DIRECT MAKES THE SHORTLIST IN BIGGEST AWARDS FOR UK PROPERTY INDUSTRY
Welcome to the Rentshield Rental Index, February 2019 edition! Here you can find our latest figured on rental amounts, variance levels and rent to income ratios throughout the UK.
With Brexit still dominating proceedings, the forthcoming Spring Statement – the second major fiscal event of the year after the Budget – has rather gone under the radar.
On Wednesday 13 March 2019, the Chancellor Philip Hammond will deliver his ‘mini budget’ and offer an update on the health of the country’s finances, just over two weeks before Britain is due to leave the EU.
Public finances are set to receive a windfall, despite the Bank of England recently revising down its forecast for economic growth in 2019.
But what of the lettings market? Here, we outline what the industry is likely to be calling for in Hammond’s latest address.
A reconsideration of buy-to-let tax reforms
The lettings industry has been very unhappy in recent years with the increased amount of tax and regulation placed on buy-to-let investors and landlords. And, once again, the calls for Hammond to relax or change taxation on buy-to-let landlords have been loud.
According to Haart’s February market monitor, the average rent in the UK was down 0.7% on the month in February, and fell by 6.8% on the year. Across England and Wales the average rent now sits at £1,281, while tenant demand remains very high (up 14.6% on the month and 34.4% on the year).
In London, it’s a different story, with London rents up 0.2% on the month in February, and up by 6% on the year. The average rent now sits at £1,924.
Tenant demand in London, meanwhile, rose by 14.1% on the month, and by 25.4% on the year.
Catering for this increased demand is not being helped by the low number of landlords registering to buy, which, according to Haart, fell by 37.4% on the year across the UK, and 41.3% in London.
While the proportion of buy-to-let sales increased by 13.9% on the year across England and Wales, they fell by 25% in London, where tenant demand is highest.
Average buy-to-let sale prices were also down 8.8% across England and Wales on the year, and by 5.4% in London.
All in all, it paints a picture of the buy-to-let market continuing to be hindered – rather than helped – by the tax reforms of recent years, which have included an extra 3% stamp duty surcharge and the phasing out of mortgage interest tax relief.
There are also concerns that rental prices have been pushed too high, especially in London. Paul Smith, CEO of Haart, says this has nothing to do with Brexit and everything to do with the ‘government’s misguided efforts’ to reform the property market with taxation on buy-to-let landlords.
“Until buy to let taxation is relaxed, we can expect rents to rise throughout 2019 and tenants will increasingly be faced with difficulty when finding a new home in the capital,” he said.
The agency has called on Hammond to rethink the reforms ahead of the Spring Statement.
Help for small-scale landlords
In August last year, the Royal Institution of Chartered Surveyors (RICS) said that private landlords were continuing to quit the sector all over the country as a result of the phasing out of mortgage interest tax relief.
Smaller landlords, in particular, were responsible for a big chunk of the exodus. As new rental supply fell, tenant demand continued to rise, leading to worries over how all these people would be housed.
Now, as part of a Spring Statement predictions article in The Telegraph, Hew Edgar – interim head of policy at RICS – has called for a full scale review of the stamp duty tax system ‘to potentially include ways back into the market for small scale landlords’.
He also wants housebuilders to be incentivised to use modern methods of construction to increase housing supply at a faster pace, in turn reducing the pressure on existing stock in the private rented sector and making it easier for first-time buyers to purchase a home.
Tax breaks for landlords
Before the most recent Budget there was speculation about tax breaks being offered to landlords, in the form of capital gains exemptions, if they sold their home to first-time buyers.
Lucian Cook, head of residential research at Savills, believes this is one measure that the Chancellor could once again be considering for the Spring Statement.
“With a real squeeze on mortgaged buy-to-let landlords, Hammond may be tempted to look at tax reliefs that ensure any properties sold by these landlords end up for first-time buyers,” he said. “But that shouldn’t detract from much-needed measures to replace that rental stock with good quality, well-managed, purpose-built homes for rent.”
He also said encouraging further investment in the fast-growing Build to Rent sector could be considered.
More enforcement for local councils
Recent analysis by the Residential Landlords Association (RLA) revealed that councils across England have slashed the amount they are spending on enforcement work to tackle criminal landlords by a quarter in less than 10 years.
The findings showed that, in 2009/10, spending by local authorities in England on housing standard activities was £44.5 million. But by 2017/18 that had dropped to £33.5 million, a fall of £11 million.
With more than 150 Acts of Parliament containing more than 400 regulations affecting the private rented sector, the RLA says that greater enforcement of these laws, supported by higher levels of funding, is vital to help drive out the minority of rogue landlords who bring the sector into disrepute.
Ahead of the Spring Statement, the RLA has called on the government to provide in the upcoming Spending Review a multi-year funding package to back initial enforcement action.
As well as the regular calls for wholesale stamp duty reform and a relaxation of buy-to-let taxation, there may also be increasing pressure on the government to review its controversial Right to Rent policy, which was recently ruled to violate human rights by the High Court.
Overall, most market commentators expect little movement on property in the Spring Statement, with other measures taking precedence as Hammond perhaps seeks to divert attention from the ongoing Brexit uncertainty with some attempted sweeteners.
Nevertheless, property usually features in some shape or form in these major fiscal events, so there is likely to be something – even if it’s only a small announcement – in the Chancellor’s latest update.
The Fee Ban brings with it massive opportunity for you and your business. Why not spend the next 13 weeks thinking about how you can make the most of this and be READY!
Opportunity 1 – Improve efficiency
Most agents at this point are starting to think not only about increasing their revenue streams, but about where costs can be managed. When thinking about your spending, don’t just think about the physical pounds and pence something is costing you, think about the man hours too.
Think about the activities that take up the most of your time, and if you could introduce time-saving technologies to free up your time for what really matters – meeting landlords, finding tenants and giving that service that sets you apart.
For example, do you print applications forms or complete them for applicants? There is no need! Just send your tenants a Rentshield Direct link and the rest is taken care of. Do you spend time storing right-to-rent documentation? Rentshield Verify does that for you.
There’s also technology out there that will improve efficiencies with inventories, viewings, repairs, and a whole host of other things. You may put off implementing some of these things because of costs getting set up, but they could well save you a fortune in man hours.
Opportunity 2 – Improve your service offering
Even if you’re not planning on increasing your landlord fees, a lot of agents in your area will be. Competition will be tough as landlords start looking for the best deal AND the best service. You can aim to be the cheapest in your area, or you can be the best. This is the time to start thinking about what extra services you can provide to landlords as part of your managed service – rent guarantee, right-to-rent checks, rent collection, and insurance are all great places to start.
If you are planning on charging more to your landlords, you should think about DOING more to justify this, and stop your valued customers from joining those that will be shopping around.
Opportunity 3 – Show your value
How much do you do for your landlords and tenants that they aren’t even aware of? Landlords use a letting agent not only to lighten their load, but also for your expertise. It’s time to start shouting about what it is that you do. Consider putting together a fact sheet of what your service includes – this will allow the opportunity to start charging for some of the things you’ve traditionally done for free, but will also get those landlords who are planning to go it alone thinking – can they really make do without you?
Opportunity 4 – Be innovative!
Smart and efficient marketing is vital for any business to succeed. Have you thought about new ways that you can reach your customers? Been meaning to try your hand at sponsored social media? Why not use this time of change as an opportunity to try it? Facebook allows you to set a budget that suits you and build audiences that meet your criteria. On LinkedIn you can send messages straight to the inbox of potential landlords. On Instagram you can tag your location so people interested in your area can find you. You can trial all of this either for free or for very little cost, why not?
We understand as much as anyone that the coming months could be unsettling for those in the lettings industry, but we’re here to help you prepare for and manage the changes that are coming. Keep an eye out for further guidance as we countdown to the ban.
The rise of the private rental market over the last few years has been clear for all to see as the numbers of tenants, rental properties, landlords and letting agents continue to rise.
This shift towards renting has admittedly brought its own problems for agents and landlords. Increased government scrutiny has led to a more regulated sector with more legal compliance obligations for those letting property than ever before.
However, a more professional sector has its own merits and the overall intention to rid the industry of a minority of rogue landlords and agents remains worthwhile.
The signs for the rental market in 2019 are positive, with demand for housing from private tenants expected to remain high and rental growth expected to be steady.
But what can we learn from the past to help inform us in the future? The government has recently published its annual English Housing Survey (EHS) for the period covering 2017-18.
Here’s a rundown of all the key points letting agents need to know:
The EHS revealed that in 2017-18, 14.8 million (64%) of the estimated 23.2 million total English households were owner occupiers. When it comes to private rentals, meanwhile, there were some 4.5 million households (19%).
The private rental sector (PRS) has hovered around the 19/20% of households mark since 2013-14 but has doubled in size since 2002. During the 1980s and 1990s, the proportion of households in the PRS was steady at around 10%.
The makeup of the PRS has been evolving rapidly in recent years, with more families and older renters entering the sector. This is due to a combination of factors including rising housing standards, house buying affordability issues and appreciation of the flexibility renting offers.
According to the latest EHS, the number of 35-44-year-olds privately renting more than doubled from 13% in 2007-08 to 28% a decade later.
What’s more, during the same period approximately 795,000 households with dependent children entered the PRS.
For many years renting has been seen as the preserve of younger generations saving for their first home, but this now seems to be changing.
That said, the under-35s continue to dominate the sector with 28% of households in this age bracket privately renting in 2017-18, up from 13% ten years previously.
For a few years now, the PRS has represented the largest housing tenure in the capital and the EHS reveals that in 2017-18 it accounted for 28% of households (up from 19% in 2007-08).
The proportion of owner occupiers has been declining over the same period, with just 27% of households recognised as mortgagors, down from 34% a decade ago.
Outside of the capital, the PRS now represents 18% of all households, up from 10% in 2007-08. The number of owner occupiers outside of London has also fallen, although not to such a low level (30% in 2017-18, down from 38% in 2007-08).
The government’s plans to introduce mandatory three-year minimum tenancies as standard have been well-documented. However, the EHS raises the question as to whether it’s a necessary measure.
The survey shows that the average length of a residency in the PRS was 4.1 years in 2017-18.
It also reveals that some 49% of tenants have lived in the PRS for less than five years, while 25% have been renting for between five and nine years and 26% have been residing in the private sector for over a decade.
The greatest number of household moves within, into or out of a sector in 2017-18 was recorded in the PRS, demonstrating why the market is so fast-moving.
In total, some 860,000 households moved from one private rental property to another and 219,000 new households were created.
There were 153,000 moves into the PRS, made up predominantly by owner occupiers (64%) while the vast majority (76%) of the 273,000 tenant households who moved out of the rental market bought their own property and became owner occupiers.
As always, the EHS makes for a very interesting read – you can view the headline report in full here.
It’s clear from the report that the PRS remains stable and continues to house more people from ranging demographics.
There are numerous challenges for letting agents to face this year, not least the tenant fees ban and Brexit uncertainty, but there are still plenty of positives to take from the long-term growth of the sector.
The Rentshield Rental Index provides you with a monthly update on rental figures and statistics throughout the UK.