London’s hard-pressed tenants have finally been handed a measure of relief with average rents in the capital falling for the first time in six years as landlords flooded the market with new buy-to-let properties.
Rents charged on newly let London homes dropped 0.5 per cent in July from a year earlier to £1,280 a month. Although the decline was small — saving tenants a mere £7 a month on average — it nonetheless bucks the trend of rising living costs that has prompted businesses to sound the alarm over the city’s competitiveness.
Rents also declined in several regions of the country, according to Countrywide, the listed estate agency group.
One cause of the drop was a greater number of homes being brought to the rental market: across the country there were 23 per cent more homes up for renting in July than a year earlier, while in the capital a third more houses and flats were available.
“There have been two factors at play: a rush to avoid the stamp duty surcharge [introduced in April], which has meant we have a higher level of stock in the market, and sentiment weakening in the sales market, which means more discretionary sellers deciding to put homes up for rent instead,” said Johnny Morris, director of research at Countrywide.
The government imposed an additional stamp duty charge from April on those buying second or additional homes, amounting to 3 per cent of the purchase price and prompting a stampede to buy property before the charge came in.
In addition, a faltering sales market has prompted a growing number of would-be sellers to let out their homes instead since the spring, according to separate figures from Countrywide. In the past 60 days, 10 per cent of all properties withdrawn from the sales market have been listed for rent — a figure that reaches 14.1 per cent in London.
Around the country, average rents on new lets in the south east dropped 1.1 per cent over the year to £1,173, while in Scotland the figure was down 1 per cent to £689 and in Wales down 2 per cent to £671.
London landlords continued to drive a hard bargain when renewing existing rental contracts, however, extracting rents 8.4 per cent higher than a year earlier at £1,247 a month. But on new rental deals, fewer landlords have been able to secure rents above asking levels: some 11 per cent of homes were let for more than the asking price in July, down from 32 per cent a year earlier.
The prospects are mixed for tenants hoping for this trend of lower rents to continue. The rush to buy before the extra stamp duty charge came in probably brought forward many buy-to-let purchases that would otherwise have happened later in the year, said Mr Morris, meaning that the effect “is not going to change the market”.
But he added: “We will probably see more homes to rent because of uncertainty in the sales market for a while.”
Tenants in the capital have come under intense pressure from rising costs: rents in London have risen by 19 per cent in the past five years, according to government figures, to a point where the average London tenant spends about 60 per cent of their income on rent.
Sadiq Khan, who was elected mayor of London in May, has promised to tackle the rising cost of housing, potentially by capping rents.
Mr Morris said there was little sign of rents falling significantly but that further rises might be restricted if they were in danger of making renting in London unaffordable. “The rental market in London has adapted to rising rents by people sharing rooms and moving to cheaper areas but there is a limit to how much flexibility there is in the market,” he said. “In London, as well as supply and demand, incomes are a limiting factor.”
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