Rent prices: Deposits and rental prices to soar – is the lockdown to blame?
Across the UK millions of people rent their homes from private landlords, making for a perilous situation due to lack of income amid the coronavirus lockdown. According to data from the Office for National Statistics (ONS) the number of households in the private rented sector in the UK increased from 2.8 million in 2007 to 4.5 million in 2017, an increase of 1.7 million (63 percent) households.
With furlough, layoffs and reduced salaries due to the coronavirus outbreak, the rental sector may feel a sense of upheaval in the coming weeks and months.
In March, renters were offered somewhat of a safety net when communities secretary Robert Jenrick said all evictions would be extended in England and Wales to three months.
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Now, research undertaken by rental deposit replacement scheme, Ome, has highlighted how a lockdown reduction in rental stock entering the market could result in higher rental and deposit costs for UK tenants.
Ome investigated the percentage of buy to let mortgage loans approved over the last five years as a percentage of all loans.
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The figures from the Financial Conduct Authority show the number of landlords entering the market with new stock has slowly declined every year since 2015, with an average annual drop of minus one percent.
At the same time, the value of the buy to let market has also shrunk at an average annual rate of minus one percent a year, now worth £35,661m compared to £37,424m in 2015.
Despite a declining level of stock entering the market, there has been growing demand which has seen the average UK rent climb by an annual average of four percent each year since 2015, now at £743 a month compared to £627 in 2015.
The average cost of a rental deposit has also increased at an average rate of three percent each year over the last five years.
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A similar increase this year would see the average rent hit £776, while the average deposit would reach almost £900 despite the recently introduced five-week deposit cap.
In England, the Tenant Fees Act 2019 came into effect on June 1, 2019, and limited the amount a tenant can be charged for a holding deposit and security deposit and defines what a tenant can be charged in addition to rent.
The changes were:
- Holding deposits are capped at one week’s rent;
- Security deposits will be capped at five weeks’ rent where the annual rent is less than £50,000 and six weeks’ rent where the annual rent is £50,000 or more
- Default fees (fees which can be charged during the tenancy) are limited to the reasonable costs incurred in replacing a key or lost security device or interest on rent overdue by 14 days or more, capped at three percent above the Bank of England base rate
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Now, Ome predicts any lasting reduction in rental stock due to the current pandemic could result in a much larger increase in cost for UK tenants in the long term.
Co-founder of Ome, Matthew Hooker, said: “Through no fault of their own, agents and landlords are facing a very tough few months with some tenants unable to pay their rent and some landlords facing much longer void periods due to a drop in market activity.
“The buy to let market has already seen a notable decline in appetite following increases to stamp duty and changes to tax relief, with the number of buy to let mortgages declining steadily since 2016.
“It is no coincidence that rents have also climbed rapidly during this time.
“As a result of these latest market developments, we could see many decide to exit the sector, or opting to refrain from a buy to let investment for the foreseeable future at least.
“This further reduction in stock would have grave implications for the nation’s tenants who have already seen the cost of renting increase due to an imbalance between demand and supply.”
Demand for housing, in general, has sunk, with property portal Zoopla reporting a drop of 83 percent in new listings in the first week of April, compared to the same week a year ago.
With estate agents shutting their doors during the lockdown, the long-term market effects could be huge.
Mr Hooker said: “The industry has already predicted an increase in rental costs due to the ban on tenant fees but with even less stock now likely to be available, this increase in rent and the upfront deposit required to secure a property could be far higher than predicted.”
However, if you are looking to move into a rental property in the foreseeable future, there are things you can do.
Mr Hooker advised: “Of course, there are things you can do to lessen the impact of this increase before it materialises.
“Looking for, and securing a property now, can be easily done online with the view of moving post lockdown when it is safe to do so.
“Opting for a deposit replacement scheme can also alleviate some of the upfront cost and essentially pay for your first month’s rent at the same time.”
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