Renting is on the rise in the UK, however, research suggests that we are still behind on the build to rent trend, compared to the USA and Europe. So, what can the UK rental sector learn from its neighbours?
Broadband and utilities provider Glide has looked into the recent trends in renting in the UK, Europe and the USA, including the countries’ differing attitudes towards housing, to see if our nation is keeping up.
Although the amount of young adults (aged 25-34) renting their homes has almost doubled in a decade, from 24% in 2004 to 46% in 2014, the UK as a whole is still way behind Europe’s leading renting country, Germany. Nearly a fifth (19%) of the UK now lives in private rental housing, which is much lower than the amount in Germany (54%).
This is not just a European trend, however, as the USA has been utilising the build to rent market for the past 20 years, which is expected to grow to $317 billion this year.
The USA, in particular, has become more open to renting, with households of all education levels now more likely to rent than ten years ago, rather than just those considered of a lower social status. It is also interesting that 32% of US citizens rent as a matter of choice, compared with just 9% of the UK rental population, which has no aspiration to buy their own homes.
When looking into the reasons why the UK rental sector is behind on the build to rent trend, it seems to be down to the nation’s attitudes towards housing compared to the USA and Europe.
There are many reasons why people are starting to rent more than ever before, and it isn’t only due to finances. For many millennials who are just starting out on their career paths and are looking to progress in their chosen fields, being able to relocate for better opportunities is essential, thus, renting is the most convenient option.
Renting also provides peace of mind for tenants that, if something in the home breaks or goes wrong, then it is up to either the landlord or property management firm to fix it. This makes it a lot easier for those professionals who perhaps don’t have enough spare time to fix things themselves.
It is clear to see why there are question marks surrounding whether the UK should be looking to its neighbours on embracing the build to rent lifestyle and keep the UK rental sector strong, by providing properties for all different areas of society.
Private tenants with pets could face rent hikes after the letting fee banis introduced on 1stJune 2019, according to real estate firm JLL.
The investment management company believes that tenants with pets could suffer rent hikes of as much as 3-4% per week once landlords and letting agents are banned from charging fees.
The warning comes after JLL recorded a 25% increase in the number of tenants with pets over the past five years.
Lucy Morton, the Head of Residential Agency at JLL, says that landlords and agents typically charge a higher deposit to cover any damage and additional cleaning required from having animals in a property. However, this will be more limited once the Government introduces its five-week cap on security deposits.
She explains how tenants with pets may be affected: “With the five-week deposit cap, landlords may be deterred from letting to tenants with pets or forced to charge higher rents to cover any potential losses. The increase would depend on the rental value, but we anticipate approximately an additional 3-4% per week.
“For example, a rent of £700 per week would potentially rise to £725 per week to make up for the shortfall.”
Morton looks at the situation from a landlord’s perspective: “With a host of regulations that landlords must adhere to, as well as the changes to mortgage interest relief, the fee ban and five-week deposit cap is adding yet another cost.
“This gives landlords no choice but to increase rents in order to see a return on their investment, and they will need to hold firm on asking or renewal prices.”
She adds: “However, tenants will only be happy to pay more if the property is of high quality and well-presented. It’s the properties in the best locations offering quality amenities that will attract tenants willing to pay a premium.”
Landlords, how will you let to tenants with pets following the fee ban?
Private tenants can now have their rent payment history matched with mortgage criteria from the country’s biggest building society in a UK first.
Thanks to a collaboration between CreditLadder and Nationwide, tenants who pay their rent on time can now have their rent payment history matched with the building society’s mortgage criteria, in line with the Government’s Rent Recognition Challenge, which was launched in the 2017 Autumn Budget.
The scheme was a £2m competition for firms to develop applications to help tenants boost their credit scores and get onto the property ladder quicker and more easily.
Now, for the first time, data accessed via Open Banking will be used to help tenants find out if they are eligible for a mortgage with Nationwide.
CreditLadder can analyse the income and expenditure data of its users, and overlay it against the building society’s qualifying mortgage criteria.
Tenants who meet the criteria, and continue to pay their rent on time, will be prompted to discuss their options with Nationwide’s mortgage consultants and apply for a loan, if they wish.
While there is no guarantee that users will be accepted for a mortgage, those who do not qualify will still receive periodical checks to see if their circumstances have changed.
Sheraz Dar, the CEO of CreditLadder, says: “Tenants already using the CreditLadder service do so to improve their credit rating, as well as looking to increase their chances of being approved for a mortgage.
“With the service now live, the relationship is the first of its kind between a rent reporting service and a mortgage provider in the UK.”
They add: “Working with Nationwide is a key plank in our plans to help those who dream of owning their own home to realise their aspirations.”
CreditLadder claims to be the first and biggest rent recognition platform in the UK, which enables tenants to add their rent payment history to their credit score.
The company was a final stage winner of the Rent Recognition Challenge and became one of 20 businesses chosen from almost 100 to join the Treasury-supported Tech Nation fintech programme.
Tech Nation’s Greg Michel comments: “It’s great to see CreditLadder grow as a business and find another way to help people reach their life goals by improving their credit score. We are proud to have them as alumni.”
Following a recent report that tenancy renewals are running at a huge 90% in some parts of the capital, Agency Express has found that London boasted the strongest levels of tenant demand in the country during February.
In its latest Property Activity Index, Agency Express revealed that the number of properties let in London increased by 16.5% on a monthly basis in February, which marks the only region to record an increase in figures last month.
Following a buoyant start to the year, the index shows a slowdown in activity in the UK lettings market in February.
Nationally, the number of new property listings to let dropped by 16% month-on-month, while the amount of properties let was down by 5%. Although February’s data is affected by January’s spike, Agency Express’ annual statistics do show a greater level of activity in the same month of 2018.
Looking across the individual regions included in the index, all 12 recorded declines in the number of new listings, while just one region – London – saw growth in the amount of properties let in February.
The following regions experienced the smallest decreases in the month:
Property listings
Scotland: -0.7%
Central England: -5.7%
Yorkshire and the Humber: -9.1%
North East: -12.5%
London: -13.7%
Properties let
Central England: -0.7%
South East: -1.1%
Yorkshire and the Humber: -2.2%
West Midlands: -4.5%
Wales: -6.5%
The greatest decline in February’s index was recorded in Wales. Again, following a strong start to the year, the number of new property listings fell by 34.5% and, over a three-month rolling period, by 11.8%. Looking back at Agency Express’ historical data, this drop in activity is the region’s largest for the month of February.
Stephen Watson, the Managing Director of Agency Express, comments on the findings: “The Property Activity Index historically shows us a slowdown in activity throughout February. This month has remained relatively true to trend, but, overall, we are seeing a slower market compared to 12 months previous.”
London estate agent Benham & Reeves has recorded a growing shortage of good rental stock across the capital in recent months, as tenancy renewals peak at 90% in some areas.
A major contributing factor to a lack of rental homes is that tenancy renewals are at a high at the moment, so stock is simply not coming back onto the lettings market. In some locations across London, renewals are running at a huge 90%.
So, why is this? A few years ago, Benham & Reeves observed that a tenant might have moved to a new rental property because they fancied a change of scene. Today, however, budgets are uppermost in many tenants’ minds – as is the current political and, therefore, economic uncertainty – so stability and reducing costs are now priorities.
The estate agent is finding that, towards the end of a tenancy, most renters now contact their local branch, wishing to negotiate with their landlord and agree a new deal. It believes that there are real advantages in this for both parties.
For landlords, there is a huge benefit in maintaining continuity of income and eliminating any void periods – even a short void can cost thousands in lost rent in the capital. And, with rent prices fairly static across London, there is little to gain in holding out for a higher rent that probably won’t materialise. The cost of any void is therefore likely to outweigh any gain.
There are also direct cost savings – most notably, there are lower fees for renewing a tenancy (rather than having to find and reference a new tenant) and reduced costs usually associated with re-letting a property, such as decoration, replacing worn furnishings and deep cleaning. And, of course, you cannot underestimate the importance of keeping a tenant who looks after your property and pays the rent on time.
For tenants, too, moving home is no longer a priority once they have found a home and an area that they like. Who would choose to incur the costs and hassle of moving if you’re happy in your home?
But, if your tenant is moving on – perhaps because they’re changing jobs – then finding a new tenant quickly is vital.
Benham & Reeves has provided a detailed look at the state of the lettings market across its London branches, including the rate of tenancy renewals:
Tenancy Renewals Running at 90% in some parts of London
West London
The estate agent’s branches are all experiencing high demand at present. In some locations, it is struggling for stock, and is waiting for some tenants to vacate in March/April. However, around 70% of renters are choosing to renew their tenancies.
As a result of the lack of stock, apartments are letting on first viewing, or even sometimes before a viewing takes place. One-bedroom flats, in particular, are in very high demand and are letting instantly. In certain developments, around 90% of tenants are renewing.
Central London
After a quiet few weeks in central London, tenant demand is picking up again. Benham & Reeves reports good stock levels, with accurately priced, well-presented properties letting quickly, particularly to applicants relocating from the USA, Australia, Italy, France and Germany. The areas bordering Hyde Park are extremely sought-after. Tenancy renewals remain at a very high level – about 90% of tenants are renewing their existing agreements.
However, this is still a difficult market – applicants are knowledgeable and compare rent prices, expecting to do a deal with landlords, so flexibility is key to ensuring your property lets quickly. Many also request a six-month break clause in their agreement, in case their personal circumstances change.
With new developments setting the bar so high, in terms of presentation, another important consideration for landlords with older properties is refurbishment. Homes should be updated to a high spec to appeal to the tenants that are increasingly used to show-home standards.
Tenant demand in Nine Elms continues to go from strength to strength, with properties usually let within one or two viewings, at most. The agent is even letting apartments in advance, before the previous tenancy ends, so that the new tenant can move in immediately. And, of course, most renters renew their existing tenancies – the only ones vacating are those who are moving away.
The areas bordering Hyde Park are extremely sought-after
The City and east London
Properties in the City and east London continue to let quickly, especially those priced up to £750 per week. And, with tenancy renewals still running at over 60% (reducing the number of properties coming back onto the market), Benham & Reeves is seeing shortages of rental stock, particularly one-bed homes priced up to £550 a week.
The lack of this type of property in the City is pushing many young professionals to move east towards Canary Wharf, where there is a greater choice of good quality rental stock at affordable price points.
At the upper end of the market, the agent has new stock of two-bed/two-bathroom properties priced at £750-£800 per week coming onto the market – these are popular with senior executives, as well as professional sharers. At this price point, sharers can find a high spec home with good amenities, which would be beyond their budget if they were to rent alone.
North London
Certain Benham & Reeves branches have a shortage of rental properties at the moment, especially one and two-bed apartments, so accurately priced flats are letting quickly, but presentation must be immaculate. Applicants are savvy, though, as they research the market and compare properties in detail, shopping around to find the right rental home at the right price. Many are looking to reduce costs, so negotiate hard to get a good deal, and, increasingly, they are requesting a break clause at six months, in case their job situation changes.
The agent advises landlords to be prepared to be flexible in order to secure a tenant quickly. New developments in north London are setting the bar high in terms of décor and presentation, so it also recommends that landlords consider a refurbishment if their property has not been decorated for a while. Refurbished properties always let more quickly, so the cost usually pays for itself pretty quickly.
Benham & Reeves is receiving a lot of enquiries from relocation agents and professionals working for some of the large tech companies moving to north London at the moment. Being close to the Northern Line means that it is an easy commute to Kings Cross and nearby areas, where many of these firms now have headquarters. The availability of parking is also an important issue, with most applicants requesting an apartment with its own private parking space.
Tenancy renewals are very high, at around 80%, which illustrates how popular these developments have now become.
Property portal Zoopla is banning the phrase “No DSS” in housing advertisements on its websites. Property owners and managing agents will be prohibited from using it in listings by a change in terms and conditions.
Zoopla will also remove any “No DSS” references in listings and remove the “No DSS” fields in its own cloud-based software products.
The move comes after the Government called for immediate change to “No DSS” in housing adverts earlier this month. The Housing and Homelessness Minister, Heather Wheeler MP, said that she would be meeting with industry stakeholders to bring pressure on them for a voluntary outlaw of the practice.
Housing charity Shelter has been challenging “No DSS” housing adverts, as well as naming and shaming agents that it believes veto prospective tenants if they are in receipt of benefits.
Zoopla announced that its ban will be fully in place next month.
The portal’s Managing Director, Charlie Bryant, says: “We fully support the recommendations of the NLA [National Landlords Association] and the RLA [Residential Landlords Association], which oppose blanket bans against tenants in receipt of housing-related benefits, and are pleased to be taking action which clarifies this position.
“All tenants who are looking to rent a property deserve the chance to be fully assessed for their suitability, and matched to a home that suits both their and the landlord’s circumstances.”
He adds: “We proactively sought the views of our largest lettings-focused agents to ensure the above measures were undertaken on a collaborative basis and received significant support in respect of our proposed additional measures.”
Chris Town, the Vice Chair of the RLA, responds to the news: “We welcome today’s announcement from Zoopla, which comes after extensive campaigning by the RLA. Landlords should not refuse someone solely because they are on benefits, and should consider prospective tenants on a case-by-case basis. But, with growing numbers of benefit claimants now reliant on the private rented sector, we need to do more to give tenants and landlords greater confidence in the benefits system.
“This means building on positive changes already made by the Government by giving all tenants the right to choose if they want to have the housing element of Universal Credit paid directly to their landlord; working with bank lenders to remove mortgage terms that prevent landlords renting to benefit claimants, as NatWest has already done; and ending the Local Housing Allowance freeze, which has meant benefits bear little resemblance to rents.”
He concludes: “We look forward to working constructively with the Government to address these issues.”
