Mayor of London calls for two-year rent freeze

NRLA says Sadiq Khan's request for 2-year rent freeze would be disastrous for tenants. Property price increases jump up significantly May to June, from 1.1% to 3.4%;
London Mayor calls for rent freeze

The Mayor of London, Sadiq Khan has requested for a two-year emergency freeze on rents to help prevent the rise in evictions as a result of Covid-19.

This measure would mean that rents would not be allowed to rise, both between and within current tenancies.

Khan wrote to the Secretary of State for Housing, Communities and Local Government, Robert Jenrick, proposing for the emergency measure to put in place to protect renters in London.

The request arrives after research conducted by the Greater London Authority and YouGov estimated that half a million people renting in the capital could face eviction due to rent arrears caused during the pandemic.

An uncertain future

The Mayor has also asked for the option to extend the two-year freeze for longer, if there are no signs of improvement in the economic outlook for tenants, as the pandemic continues.

A similar action has been implemented in Berlin, where the state government has frozen all rents in the city until 2025.

Sadiq Khan explained his reasoning, stating:

"More than ever, Covid-19 means that many of London's private renters are facing a really uncertain future.

"More likely to be in lower-paid and insecure work, the end of the furlough scheme means even more renters in the capital are now at risk of pay cuts or losing their job.”

“I’m today calling on ministers to give me the powers to stop rents rising in the capital for as long as this virus is with us, to give London’s 2.2 million renters more financial security.

“If Berlin can freeze rents for five years, there’s no reason London shouldn't be able to freeze rents for two years in these extraordinary times”

As well as a rent freeze, the mayor has called for further measures to support tenants within the UK.

Like others, Khan is urging the government to introduce a grant or loan scheme, similar to the schemes that have been launched in Wales and Scotland to allow renters to stay in their homes and clear arrears.

Secondly, Khan has put pressure on the government to improve welfare support for renters. He has suggested scrapping the benefit cap, and restoring local housing allowance (LHA) rates to median market levels.

In addition, Khan is calling for the so-called “no fault” evictions under section 21, to be eliminated.

Rent controls would be a ‘disaster’

The National Landlords association (NRLA) has previously warned against proposals for rent controls, explaining that such measures would be potentially disastrous for aspiring tenants.

Chris Norris, policy director at the NRLA commented:

“Rent controls would be a disaster for anyone looking for somewhere to rent.

“As history and experience elsewhere tells us, all they would do is drive landlords out of the market exacerbating an already serious shortage of homes available.

“Rather than driving a wedge between landlords and tenants the mayor should focus on using the powers he already has to boost the supply of available housing, including for private rent.

“Only then will he make any discernible impact on improving the affordability of housing across the capital.”

Housing price increases jump up in June

UK house prices increased by 3.4% in the 12 months to June, compared to an annual rise of 1.1% in May, the UK House Price Index disclosed.

At a regional level, the East Midlands experienced the biggest annual rise of 4.5%. In comparison, the North East saw the lowest annual price growth, with a rise of 1.7%.

It is important to note that prices were likely driven by an influx of buyers resuming purchases that were put on hold during the Covid-19 lockdown shortly after the restrictions were lifted.

As reported by the Centre for Economics and Business Research (CEBR), approximately 150,000 property transactions were put on hold in March as a result of the lockdown, and resumed again in June.

Property demand

A survey conducted by Savills, an estate agency, showed that there are currently a higher number of buyers and more properties on the market, as people have a greater urgency to move.

It could be said that the demand has been driven by the desire for a home that suits new lifestyle needs. Being in lockdown as a result of the Covid-19 pandemic, has encouraged people to find a property with more space and for some, an outside area.

Whilst some people have faced financial hardship due to the pandemic, some have found themselves with more money than they expected, especially as holidays and other big events have been cancelled, leaving them looking for a new property to live in or to invest in.

Frances Clacy, a Housing Analyst at Savills, commented:

“Since the housing markets began reopening on 13th May, the top end has rebounded particularly strongly, as it is underpinned by equity.

“The stamp duty holiday is providing additional impetus, and when combined with the experience of lockdown, is bringing forward purchases that may otherwise have happened in two or more years’ time.”

What’s to come?

Whilst the current demand is positive, it is widely expected that the property market will experience a decline next year.

David Westgate, Chief Executive at Andrews Property Group, believes that the current ‘mini boom’ has been driven by the pent up demand and the government’s introduction of the stamp duty holiday.

He points out that we should be mindful of how precarious the economic climate is and how quickly consumer confidence can be affected.

Westgate explains:

“We are not out of the woods by any stretch, and there are growing concerns that the stamp duty freeze is fuelling unsustainable house price growth.

“Growth needs to be controlled, and lenders have reacted by cutting higher loan-to-value products to avoid a potential boom and bust scenario if house prices carry on rising unchecked until next March when the stamp duty holiday ends.

“It would also be foolhardy to disregard the strong economic headwinds that are blowing in, both pandemic and Brexit-related.

“The furlough scheme is due to end in just over a month’s time, and millions of people still haven’t returned to work. We are also no closer to thrashing out a trade deal with the EU.

This information should not be interpreted as financial advice. Mortgage and loan rates are subject to change.