Catherine Cockcroft, Director and head of lettings at Aylesford International provides her regular rentals review of the current market and the effect of legislation and taxation on rentals in Prime Central London.
“After a slow start to the year, May/June saw an increase in applicants looking to rent. As always, this time of year is the start of the family house market with applicants looking to find properties to rent with an August start date, so they are ready for the new school year starting in September.
In general, this year it worked out well for families looking to rent, as they came into a market that had seen little movement for six months, which meant that landlords were prepared to negotiate on their asking prices in order to secure a tenant within this ‘window’.
On renewals, rents remained the same, or there was a degree of negotiation around the RPI, which has slowly increased over the year and is now 3.6%. In a couple of instances, we saw tenants move out in order to take advantage of a larger property at the same rent; however in one case, we let the house that they moved out of on the first viewing, and at the same rent as they were paying.
Due to the slowdown in the sales market, we have seen an increase in demand for properties that have been finished to the highest standards, with applicants being prepared to pay £10,000 to £15,000 per week to rent the ‘right’ property, whilst they wait to see what happens to the sales market in London. At this level, the properties were usually on the market for sale and the vendors had reluctantly been obliged to consider the rental option whilst they wait for the sales market to improve.
Prime Central London Lettings Market
The lettings market in prime central London is reliant on homes for the corporate sector, so that when companies are not employing from overseas, the market slows down. Whilst there is so much global unrest and specifically uncertainty around what the outcome of the Brexit negotiations will actually mean, companies must nevertheless continue to trade and their employees need homes, therefore the rental market should continue to be active, albeit with rents remaining at lower levels for the time being.
As long as the sales market remains slow for a number of reasons, most notably the increase in SDLT, we are optimistic that we will see an increase in the number of applicants looking to rent – who would otherwise have bought had the taxation not been so punitive.
Landlords have also seen an increase in legislation over the last few years. Some of it, around health and safety for tenants, has been well advised. Other legislation, including (over the next four years), a gradual reduction in higher rate tax relief on mortgage interest payments…has been less well received! This will result in a landlord having to pay tax on the full amount of rent received, before being able to claim a tax reduction of 20% of their mortgage interest payment. In some cases, even a basic rate tax payer could be pushed into the higher rate tax bracket.
There has been much discussion over this change in taxation; but longterm landlords with lower mortgages and who have seen capital growth over the years, may conclude that it is still worth holding onto their properties for the time being. More recent landlords are likely to want to see an increase in capital growth before selling their investment. In any event, to date we have not seen a rush of landlords wanting to sell their rental properties as a result of these changes.”
Catherine Cockcroft is Director and Head of Lettings at Aylesford International