Raising rents to compensate for the reduction in mortgage tax relief from April may not be feasible as tenants are already approaching an ‘affordability ceiling’, Homelet’s chief executive Martin Totty warns.
He was responding to Homelet’s Rental Index for December 2016 which revealed that average UK rents have risen by just 1.7% year-on-year, down from 3.8% in the year to December 2015.
Totty said: “While demand for rental property remains strong, landlords always have to be mindful of tenants’ ability to pay higher prices.
“The data recorded… during the second half of last year suggests we have now begun to approach an affordability ceiling, particularly in areas of the country where rental price inflation was previously highest.
“While the industry has speculated that landlords will increase rents to mitigate the impact of factors such as the impending reductions in mortgage interest tax relief, this may prove problematic given the pricing trends we’re currently seeing in the market and the potential for higher inflation and a squeeze on real earnings in 2017.”
Areas with the biggest rental increases are Northern Ireland (6.4%), the North East (4.9%) and Wales (3.9%), although rents only increased by 0.8% in the North West, 0.7% in the South West and they fell by 0.4% in the East Midlands.
Rents in Greater London were 2% higher in December compared with 6.8% at the mid-year point.
Totty added: “The fact that the areas of the country where rental price inflation was previously highest were the areas in which rent increases dropped back most significantly in the second half of last year adds weight to the idea that an affordability ceiling is now becoming an issue. Landlords and letting agents are clearly being cautious.”