Landlords risk losing tenants if they raise rents

A property with a 'to let' sign outside

New research suggests that as many as eight out of ten tenants could seek new housing if their landlords raise rents in response to the new landlord tax regime.

The government’s decision to restrict buy to let mortgage interest relief in the July Budget will leave landlords in the higher and additional rate brackets paying more tax, which led commentators to claim that rent increases were inevitable.

Price comparison website Make It Cheaper conducted a survey of 1,000 private tenants in the UK between 27 and 28 July 2015. The survey showed that just 20% would stay in their current housing if rents rose; 38% are uncertain as to how the cuts will affect them; and over half believe greater rent controls should be introduced 1.

The BBC recently reported that UK rents are already the highest in Europe 2.

Landlords, however, seem to be confident that tenant affordability will not be overstretched, with 75% expecting rent arrears to remain stable and 6% expecting them to decline. The proportion of landlords who are optimistic about arrears has grown for three consecutive quarters, according to lender Paragon’s latest PRS Trends Survey 3.

In addition, 17% of respondents to the survey are planning to make additional purchases in the summer quarter. Paragon’s director John Heron commented:

“Landlords continue to experience strong tenant demand and are keen to add to their portfolios. The positive signals being picked up elsewhere around the economy also seem to have flowed through to the PRS with landlords experiencing low arrears and low, stable voids."

Should you raise rents?

Local factors are a far stronger determiner of rental levels than profit margins, and landlords who attempt to raise rents in unreceptive markets may risk lengthier and more frequent voids and arrears.

For more information on how to set an appropriate rent, see our article what rent should I charge? For a further look at potential implications of the changes in tax relief, as well as an examination of some options you could consider in response, see buy-to-let tax relief and interest-only mortgages.

References

  1. “Rent rise fears over landlord tax relief cuts”. Make It Cheaper. N.D. Retrieved on 5 Aug 2015.
  2. Peachey, K. “UK rents ‘most expensive in Europe’ at time of cheap mortgages”. BBC Business. 24 Jun 2015
  3. “Three quarters of landlords expect rental arrears to hold steady”. Paragon Mortgages. 3 Aug 2015.

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

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