Update: How has the UK Property Lettings Market held up since the 2016 SDLT?

One in five households in the UK is now renting. As we get deeper into the first quarter of 2019, forecasts for the lettings market in the UK are a mixed bag. While rents are predicted to increase, other factors may make the market a difficult place to be, both for landlords and tenants. Perhaps one of the biggest changes to UK property lettings in recent years has come from the impact of the 2016 increase in Stamp Duty Land Tax (SDLT). While this may seem to have more relevance to purchases than lettings, in fact its effects have been widely felt.

SDLT increase

In 2016, an increase of 3% was applied to anyone purchasing a second property. As predicted, this has mostly hit landlords looking to buy property to rent out. The effect of the change is probably most clearly seen with respect to finance for rented properties. In 2015, 117,500 buy-to-let mortgages were granted. However, by 2017 this figure had dropped to just 74,900. The most direct consequence of this is that there are less properties available for rent because there are fewer landlords being granted mortgages to purchase letting-suitable options. But what trends have started to appear in the market as a result of this change?

Rents are rising and likely to continue to do so

As is to be expected, where the supply of property slows, there is more demand that is not met. As a result, rents can continue to increase and most predict rises for this year. For example, the Association of Residential Letting Agents surveyed its members, 59% of whom said that they felt rents were going to continue to rise in 2019. Just 19% of those who were surveyed indicated a preference towards falling rents.

Smaller properties tend to be more robust in terms of pricing

This trend has been continuing now for around five years – smaller properties, such as one and two bed flats, are the most in demand and so experiencing some of the most significant rent increases. The demand is being driven in large part by those young couples who are earning a good income but who don’t have the resources to put together enough of a deposit to buy.

Towns and cities are the place to be

Commuter towns, such as Reading, as well as many areas of London tend to be fairly immune to potential drops in rent as demand continues to be so high for central accommodation. However, even with the SDLT increase, some locations are experiencing a large increase in the number of new properties available, primarily driven by developers. This availability of new lettings options for tenants could – even temporarily – drive down rents in some areas and make it difficult to sustain price increases in the market in 2019.

On the whole the property market has held up well since the 2016 SDLT increase. While the tax rise has made it more difficult for some landlords to enter the market it has meant that rents are increasing for those properties currently available.

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