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Landlords will ‘exercise restraint’ as rents set to rise 2% in 2013

Rightmove’s latest survey provides the strongest indication yet that landlords are tempering their rental expectations for 2013. Just one in four landlords (25%) indicated that they had already decided to increase their rents over the next year, with only around a third of these (35%) planning a rental increase of more than 5%. Taking all landlord intentions into account the average rent looks set to change by about +2% next year. However, most tenants will hope their landlord is one of the more ‘benevolent’ majority (61%) who is planning to hold existing rents. 14% of landlords state they are still undecided, though with only 1% expecting to actually reduce rents, the majority of tenants can hope for standstill at best.

Miles Shipside, director and housing market analyst at Rightmove comments: “The widening gap between tenant demand and rental property supply over the last few years has fuelled upwards pressure on rents. However, the majority of landlords now seem to be prepared to exercise constraint and are planning a ‘rent freeze’ for 2013. Lettings agents still report consistently high demand but more are warning landlords of the risks of squeezing tenants’ finances too hard.

However, some tenants in rental hotspots like London and Manchester may bear the brunt of higher rises. This combination of apparent benevolence and bullish hotspots may give a less racy rent rise outlook overall, but does not mask the fact that some tenants are again in for a rent rise shock.”

Rightmove data shows that average rents have now increased by 13.64% between Q3 2009 and Q3 2012 as demand continues to outstrip supply. However, Rightmove also finds that, on average, existing tenants spend around 39% of their monthly take-home pay on rent and more than a fifth (22%) currently spend more than 50% of their monthly earnings (after mandatory deductions) on their rented-roof. With the private rented sector representing a secure place for investors, especially relative to other investment classes, landlords may now be considering that holding onto a long term ‘good tenant’ is preferable to pushing rents even higher and running the risk of void periods.

Shipside comments: “Landlords appear to be becoming increasingly aware of the need to strike a balance between long-term security and short-term gains. They need to weigh up whether it is better to ‘stick’ and hold rents for a model tenant or ‘twist’ and chance a rise and run the risk of ending up with a less desirable occupant, or even a void. Interestingly, around one in four landlords is an ‘accidental landlord’, and with 9% of landlords stating they are actually tenants themselves,
perhaps this growing band of non-professional landlords is more sympathetic to tenants’ rental price concerns?”

Though the less aggressive pace of rent growth may provide respite for some tenants, there is evidence that the on-going supply and demand issues that have characterised the market in recent years look set to remain. 59% of existing tenants say that they would like to buy but cannot afford to and are therefore ‘trapped’. This is up on the 54% recorded last quarter and now stands at the highest level Rightmove has ever recorded since it started its quarterly rental survey in Spring 2010.
Many tenants are victims of the new lending-landscape that favours those with large deposits and find themselves frozen out of home-ownership and ‘trapped’ in rented accommodation.

Shipside comments: “This is an important reminder of how owning the roof over their head is still the principle ambition for the majority of tenants. It is a goal that many are currently being denied by a combination of high deposit requirements and a vicious circle that means that rising rents shackle their ability to save enough to get out of rented accommodation. It is an indication that the ability to purchase seems to be as tough as ever, and the pressure for more properties in the rental
sector is not set to ease.”

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