The Changing Lettings Landscape: What it Means for Tenants

In a predictably unpredictable industry, the one thing rental property tenants can rely on is uncertainty.

Will my landlord be increasing my rent soon? If I need to move, will it be difficult to find the ideal property? And if I do settle down in the perfect pad, how long will I be able to stay there?

With the lettings landscape constantly changing, we shine a light on the current state of play and what it means for millions of tenants in the UK.

The Demand for Longer Tenancies

Increasingly, tenants are searching for longer, more secure tenancies in the private rented sector. 

As the renter demographic continues to evolve, short-term lets to a long list of students or transient professionals no longer dominate.

Instead, more and more private renters are bringing up children or growing old in their home and need the reassurance that they can stay there.

Research by the homelessness and housing charity Shelter reveals that almost nine in ten renters want the stability of a long-term tenancy. But one quarter of them have had to move home in the last five years.

The market is struggling to keep up with this demand so landlords are under increasing pressure to consider the changing nature and needs of those who rent.

There’s a mutual interest here. Renters want the security of a long-term home, landlords want the security of long-term income. Offering longer tenancies makes sense for both sides.

With a tenant in place, landlords’ costs decrease: void periods are reduced, the expense of regularly finding new tenants is eliminated and they’ll benefit from renting to someone who cares about the property.

Encouraged to look after it as it’s going to be their home for at least XX years, tenants are more likely to report issues quickly and to keep the property in good decorative order.

And this will naturally lead to a stronger tenant-landlord relationship built on trust and respect.

Partly in response to this change in the size and make-up of the renter population, the government launched a consultation to find solutions to encourage longer tenancies. The result of this is the proposed abolition of Section 21 and strengthening of Section 8 of the Housing Act 1988. A legislative step that should lead to an increase in the number of long-term tenancies available.

The Impact of Lower Fees

Since June 1st 2019, tenants have benefitted from the Tenant Fees Act which bans all fees charged by agents and landlords except ‘permitted’ ones, i.e. rent, security and holding deposits, early termination and some default fees.

Before the legislation was introduced, tenants could have been charged hundreds, sometimes thousands, of pounds in fees for items such as administration, viewings, gaining references and inventory checks.

With the fine for breaching the fees ban set at up to £5,000, tenants have found themselves with more money in their pocket, especially those who have to move regularly.

Landlords and agents meanwhile are left to pick up this cost: an impact assessment from the government last year suggested the first year of the policy would collectively cost landlords nearly £83m, while letting agents would take a hit of £157m.

Those figures are yet to be proved but lead us to the next factor affecting tenants. If landlords and agents have to absorb these fees, will average rents inevitably increase?

The Likelihood of Higher Rents

The latest data shows the average rental price for a new tenancy in the UK stands at £953 per calendar month (PCM), a 2.3% increase on January 2019. Rents have risen in nine out of 12 regions.

And the industry expects this trend to continue into 2020. ARLA Propertymark, the professional body for letting agents, asked its members to share their predictions for the private rented sector:

• 84% think rents will rise in 2020, compared to just 65% who answered the same question at the start of 2019

• 61% believe demand will continue to rise

• 68% feel the number of landlords will decrease

So what’s driving this increase? Alongside the usual market fluctuations and economic influences, landlords have been faced with several pieces of legislation which could restrict their profit.

These include:

• The Tenants’ Fees Act

• An increase in insurance premium tax

• An increase in stamp duty

• The phasing out of mortgage tax relief

• The impending Section 21 ban

• The growth of rent caps

Faced with tough cost pressures, some find their only option is to increase rent on their properties. Or to leave the buy-to-let industry altogether.

The Danger of Limited Stock

With their enthusiasm dampened to expand their portfolios, landlords are more likely to either stick with the properties they already have, offload a few or even sell their entire stock.

This will create a vicious cycle: with fewer landlords, supply will be restricted, the right kind of property for a wide demographic will be limited and rents will increase.

Indeed Landlord Today has even posed the question: “Is the UK on the brink of a mass landlord exodus?”

They cite a recent survey of 750 landlords which revealed that:

• 53% wouldn’t have purchased their properties if they’d known how much regulation they’d face

• 37% are planning to sell at least one of their properties this year

• Of those, 61% say they’re selling because of legislative changes

With the buy-to-let business model less appealing than it once was, tenants are likely to find it increasingly difficult to find the right property in the right place and at the right price.

As the letting landscape continues to evolve, the experts at MakeUrMove will keep you up to date. Read our predictions for the next decade here.

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