New research by property management firm, Apropos by DJ Alexander, has found that due to static rent prices and reduced tax relief hitting profitability, many landlords are feeling the squeeze.
The study revealed that over the last five years, the average private rental price increase in England has dropped from 1.7% in January 2014 to 1.1% in December 2018. Over the same period average private rental price increases have fallen in Scotland from 1.7% to 0.6% whereas in Wales the numbers have risen from 0.5% to 0.8%.
In England the market peaked over the five-year period between May 2015 and December 2016 when the average rental price increase was between 2.4% and 2.8%. Scotland peaked between April 2013 and July 2015 with average rental price increases of between 1.7% and 2.1% while Wales had its peak between July 2017 and September 2018 when figures ranged from 1.0% to 1.7%.
Within these figures there are enormous regional variations with the East Midlands the best performing area with average private rental prices between 2.5% and 2.9% over a two-year period which has continued until December 2018. London is at the other end of the scale having fallen from an average rental price increase of 2.8% to 0.2% five years later. In between the sector was rarely below 2.0% for three years and peaked at 4.3% in August 2015.
However, since September 2017 the average rental price increase fell below 1.0% and over the last year has had six months in negative territory, two 0.0% months and the remainder between 0.1% and 0.2%.
David Alexander, joint managing director of Apropos by DJ Alexander Ltd said, “The tightening of rent price increases could not have come at a worse time for many landlords who have just had the third phase of George Osbornes’ policy of decreasing tax relief coming into force on April 6th. For many landlords they will find that their net income may have halved over the last two years with lower returns to come over the next two years. The situation in Scotland is slightly worse as taxation is higher.
“The situation, therefore, for many landlords will be to decide what to do with their investment properties in the next period. Clearly the marketplace has become much more problematic for the ‘accidental’ landlord and the smaller investor. It really has become much harder to make money out of property over the last few years.”
Alexander continued, “Of course, many landlords may be considering selling up, but they need to think carefully as the rules are changing and if they sell after April 2020 there could be more bad news from a further loss of tax relief. From next year the availability of capital gains tax lettings relief has all but been removed and will now only to apply where owners share occupancy with the tenants.”
It has, become more expensive to buy a rented property, more expensive to run it, and less profitable to sell it.”
Alexander added, “Clearly some parts of the UK remain buoyant and returns are healthy. But for other areas there may be choppy waters ahead as static or even falling rent increases result in property no longer being viable for some landlords.
“This is the time for all landlords to review their circumstances, look at ways to reduce their costs and increase their income, and to look more closely at their property investments. For some, perhaps, the best move might be to exit the market but for many others property investment remains a sound option as long as the landlord is organised, is partner with the right professional advice, and is able to weather financial downturns and look at the investment as medium to long term.
“I think we may see these rental price increases remain flat for some time to come so it is essential for landlords to look at all aspects of their business and work out the best strategy to not just survive but to thrive in the coming years. There is no doubt that London will recover over the next few years and once again be an excellent place to invest as will many other parts of the country. Property is not a static or fixed market and rental prices will rise and fall with demand, and investors and individuals must understand this.”