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Rents set to jump by 20% in next five years

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By Nicky Burridge

March 9, 2017

 

Rents could soar by more than 20% in the next five years as landlords exit the sector in the face of tax changes.

The Royal Institution of Chartered Surveyors (RICS) warned the shortage of homes available to let was continuing to grow, with tenant demand exceeding supply for 38 months running in February.

The group said the negative trend looked set to continue in the run up to new tax rules coming into force in April.

By comparison, house prices are expected to increase at a slightly slower rate of 18% over the same period.

Why is this happening?

The mismatch between supply and demand is pushing rents higher.

A number of tax changes, including a reduction in the amount of mortgage interest tax relief that can be claimed from this April, have made it more expensive to be a landlord, causing some to leave the sector.

At the same time, tougher mortgage affordability criteria for buy-to-let landlords is making it harder for new people to enter it and for existing landlords to expand their portfolios.

Meanwhile demand for rental property is increasing as people put plans to buy a home on hold in the face of economic uncertainty caused by Brexit.

RICS said new buyer inquiries had been losing steam in recent months and were flat in February.

 

Who does it affect?

The fact that rents look set to jump is bad news for tenants, especially those who are trying to save to get on to the property ladder.

Those on lower incomes look set to be hit particularly hard by the increases.

Sean Tompkins, chief executive of RICS, said: “The housing market is falling increasingly out of step with the majority of household incomes.

“In the current climate, it can be hard enough for young professionals to make ends meet. But for those on benefits, the pressures may be insurmountable.

Sounds interesting. What’s the background?

The buy-to-let sector has been hit by a number of tax changes in the past year.

Last April, the Government introduced a 3% stamp duty surcharge for people buying a second property, while it also abolished the standard 10% tax relief for ‘wear & tear’ for those renting out furnished homes.

A recent survey carried out by the Council of Mortgage Lenders (CML) found that 19% of landlords planned to hike rents to cover the cost of being able to claim back less mortgage interest tax relief from April, while 5% said they had already done so.
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