"Tenants are increasingly pushing back against the sort of large rent increases that have become more common, either by re-negotiating or leaving at the end of the tenancy"
- Tom Bill - Knight Frank
While next month’s general election has created the usual mood of uncertainty in prime London sales markets, it represents an anti-climax for the lettings market. After five years, the Renters Reform Bill was scrapped due to the tight Parliamentary timetable ahead of the election.
The Bill was designed to provide greater security for tenants and included a plan to get rid of no-fault evictions.
The National Residential Landlords Association said: “While there’s no suggestion that what was on the table was the ‘perfect’ Bill as far as landlords, and arguably tenants were concerned, what we had was something that we believed was fair and workable.”
If Labour wins the election, some version of Renters (Reform) Bill is likely to re-appear, although the timing will depend on their wider list of priorities. Until then, uncertainty reigns. It seems a safe bet that any new legislation will still involve the scrapping of no-fault evictions but how practical will any proposals be given the pressures already on the courts?
Meanwhile, Shadow Chancellor Rachel Reeves appears to have ruled out rent controls as a “blanket approach” but the possibility of further tax tweaks, tougher energy requirements and other measures designed to limit the powers of landlords may cause more to leave the sector.
An active sales market during the pandemic meant lettings stock fell as owners capitalised on buoyant conditions by selling. Landlords had already been leaving the sector over the last decade due to proliferating red tape and tax.
Those who haven’t sold up typically have preferred shorter tenancy lengths to leave themselves the flexibility to do so. The basic laws of supply and demand mean that tenants have faced higher rents as a result.
Average rental values in prime central London were 33% higher in May than they were before the pandemic in February 2020. Meanwhile, the same increase was 28% in prime outer London.
Despite the jump, rental value growth has calmed down in recent months as supply and demand re-balance.
Average rents increased by 4.1% in the year to May in prime central London (PCL), while there was a rise of 3.7% in prime outer London (POL).
The number of new lettings listings in London was 10% below the five-year average (excluding 2020) in May, Rightmove data shows. That compares to declines that were frequently more than 20% during the two years to last July.
As a result, tenants are increasingly pushing back against the sort of large rent increases that have become more common, either by re-negotiating or leaving at the end of the tenancy.
We forecast rental value growth of 2% in PCL and 2.5% in POL this year, although we expect those numbers to rise in subsequent years due to legislative uncertainty.
