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What to expect in the rental market 2015

12 January 2015 / By: / Under: Private Rental Sector

Prospects for the rental market look good for the next 12 months and beyond, despite the dark clouds of political uncertainty in the form of the general election in May hanging over the property sector. All the economic indicators point to property remaining a good medium and long-term investment, particularly if you have an agency to help you with all of the daily headaches and guarantee your rental income.

Interest rate rises

Some commentators claim that 2015 will finally be the year that we’ll see the Bank of England base rate increase from its all-time low of 0.5%. In 2014, the Bank of England said that they’d only rise when unemployment dropped to below 7%, yet hastily retracted this when the jobs market picked up faster than expected. Now the Bank’s governor Mark Carney has said that interest rate rises will be linked to wage growth, with predictions that they’ll rise gradually around the end of 2015.

If interest rates do go up, this could have an impact on rental returns as landlords on variable rates would have to pay higher borrowing costs. Unless they put rents up, interest rate increases could have an effect on their returns. However, it’s important to remember that these hikes are likely to be very small and very gradual, so are likely to be low impact.

Supply

One of the reasons rents have been rising year-on-year to the extent that in London rents are up 20% in the last seven years, according to some reports, is because there are so few properties on the market.

However, the effects of pension reforms are likely to hit the market in April. The government scrapped compulsory annuities for pensioners in last year’s Budget, so there’s been lots of talk about people cashing in their pensions to invest in the property market. This could boost buy-to-let supply and perhaps push rents down.

Wage growth

Landlords may find that it’s difficult to pass on interest rate rises due to the lack of wage growth in the economy. This may cause some landlords to sell up and they may find it hard to make buy-to-let cash flow positively, as yields are squeezed.

Government policy

When leading thinktank Civitas called for guarantees that rent will not increase above inflation, it opened the door for the major political parties to score points over each other in the run-up to the general election in May.

We’ve all heard about the mansion tax the Labour Party pledges to impose on properties worth more than £2m, but we haven’t heard much about the regulation the current Opposition is talking about when it comes to the rental market.

Party leader Ed Miliband has actually said he wants to introduce longer tenancy agreements and rent controls; however, the mansion tax got all of the headlines.

It’s hard to predict exactly what will happen this year when it comes to the rental market, as so much is up in the air due to the general election. However, one undeniable fact is that the number of people living in private rented accommodation in the UK has risen from 2.2 million in 2002/03 to nearly 3.9 million last year.

How does this compare to the other side of the Atlantic? According to the National Multifamily Housing Council in the US, there are 43.4 million renter-occupied households and a total of 104.5 million tenants. While Britain still has some way to go to match those figures, landlords in the UK can remain confident that there will be any shortage of demand for good homes as Generation Rent continues to make buy-to-let investments a positive long-term prospect.

Image credit: Mike Cattell (flickr.com)

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