Many reports say that, after many years when rises have been moderate, rents have been on a steep upward course over the last year.
A number of reasons have been given for rising rents: A major one seems to be because of a reduced supply of rental accommodation, due to landlords selling up as a result of Government policy, while demand continues to be strong.
In some places there have been reports of bidding wars – something that has previously been pretty much unknown in the UK rental market. Prospective tenants have been asked to submit ‘offers over’ the suggested rent for a property , or invited to better what another applicant has bid.
This reportclaims private rents in Britain have hit record highs, with 20% rises over the last year in some areas. It says the supply of rental property has fallen by 9%.
Zooplasays that rents on new lets have gone up £115 per calendar month compared with this time last year, rising faster than wages, or around 18% in London. They forecast rents will continue to rise at above average levels in 2023, although rises will gradually slow.
On the face of it, rising rents appear to be good news for property investors, landlords and also letting agents. But are they?
Here we will take some time to look at the pros and cons.
It can’t be disputed that in some ways rising rents are good news for landlords. Rising rents help to cover rising mortgage payments, and rising maintenance and regulatory costs.
So rising rents will help landlords catch up to a certain extent. Many small private landlords in particular have not increased rents at all for a number of years.
Rising rents are good news for agents too as they can mean more management commission. Although these rises might not necessarily cover the increased costs of providing the service.
What are the downsides of higher rents from a landlord’s and agent’s point of view?
Existing tenants could become overstretched. Incomes are not, and are unlikely to, rise anything like as much as rents have been doing.
New tenants could be severely overstretched. They may offer more than they can afford to pay from day one just to secure some accommodation.
Arrears could become even more of a serious issue.
Tenancies may not last very long as tenants find they have to give notice after a 6 or 12 month tenancy due to affordability. That creates more work and more expense for landlords and agents.
It makes it very tempting for landlords to give notice to an existing good tenant so they can relet the same property to a new one for several hundreds of pounds a month more.
While it seems to be good for agents and makes them seem busy it can create problems. It can mean more enquiries and applications which do not result a let to handle. It can mean more applications are rejected at the referencing stage. And more problems later down the line.
As the Zoopla report above says, tenants might be pushed towards smaller properties. So, oddly, large and luxury properties could become harder to let even when there is a shortage of rented property.
As most landlords and agents will know, the best tenant is not always the one who can afford to pay the most. The best tenants are usually those who rent a property that is within their budget and who plan to stay long term.
The process of effectively auctioning rents might actually attract bad tenants and allow them to slip through the system.
The situation created by rising rents isn’t great for the image of landlords and letting agents either. It can make them look greedy when it isn’t a situation they have created, and they are only responding to the market.
Rising rents can speed up calls for further regulation of landlords and rent controls.
It could encourage rogue landlords into the market. And it could encourage scams to take advantage of desperate tenants, such as advertising accommodation which doesn’t exist.
Rents that are rising at an unrealistic rate can make letting property seem more profitable than it actually is. This is especially the case if rents only rise fast for a short period before dropping to more moderate levels.
It can tempt landlords, especially new landlords, to overstretch themselves. It can interfere with mortgage assessments of affordability, by making rental cover seem more favourable than it is. It can make yields look unrealistically high.
Final thoughts
At the end of the day, while rocketing rents have some benefits for those in the property industry there are many disadvantages too. It’s probably fair to say that most good landlords would rather have stable market conditions alongside stable outgoings and tax regimes and where rents appreciate more gradually over time.
