24 May 2017

UNITED KINGDOM: Rental market boosted due to uncertainty in sales market

Knight Frank, leading independent, global real estate consultancy, has reported that activity in the prime London lettings market has strengthened over the last two years due to the uncertainty surrounding taxation in the sales market. Demand is particularly strong below £1,000 per week as young professionals increasingly accept renting as a tenure model. Furthermore, corporate budgets have been tightened, which boosts demand at lower price points but means demand is weaker between £1,500 and £5,000 per week. Above £5,000 per week demand remains strong as uncertainty persists surrounding the impact of fiscal policy on the sales market. New supply has exceeded new demand due to the same uncertainty, meaning rental values have fallen in many areas, declining -4.9% in prime central London in the year to March 2017.

UK rental growth has eased slightly to 2.1%, down from 2.6% at the start of last year, but up from 1.4% in the summer of 2014. Rental growth in London has moderated to 1.6%, down from a high of more than 4% in 2015, while average rental growth outside the capital has climbed to 2.2%, up from 1.1% in 2015, led by the South East. In Scotland, a minimal 0.1% reversal in rental growth has been reported.

Tenant demand remains strong across the market, with a continued lack of supply in many markets. The changes to tax policies for buy-to-let landlords, with the gradual withdrawal of mortgage interest reliefs between now and 2020 could prompt a re-think for some smaller property investors who may choose to sell, although at the same time a significant level of institutional investment is flowing into the sector. The increase in stamp duty for buy-to-let investors is likely to dampen trading within the market, further exacerbating the lack of properties for sale. The attraction of rented accommodation for those who do not want a mortgage, as well as ongoing affordability constraints signal continued rental growth as demand expands.

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