A rise in rents and a lack of homes to let look set to be a feature of the 2019 letting market.
While this is bad news for the one in five households that now rent a home, the new year also brings glad tidings for tenants.
The Tenant Fees Bill looks set to reach the statute books in spring next year and this will bring an end to letting fees, including those charged for reference checks.
There may also be a cap of six weeks rent on deposits paid at the start of the tenancy, while holding deposits will be capped at no more than one week's rent.
Tenants are delighted but the new legislation means a big drop in income for letting agents.
Will Linley of Yorkshire-based lettings specialist Linley and Simpson says: “For tenants, landlords, and letting agents across Yorkshire, the unprecedented challenges that lie in front of us all in 2019 promise to be the typical Curate's egg - partly bad, but also partly good.
“There are two factors poised to dominate the rental sector over the next 12 months - the continuing imbalance between high demand and low supply, and the looming ban on charging fees to tenants.
“Together, it is inevitable that these external market forces will prove a hair trigger for an uplift in monthly rents.”
Linley and Simpson say that one of the key reasons behind the shortage of rental stock is a lack of new buy-to-let investors entering the market, primarily due to uncertainty over Brexit.
Extra stamp duty, which was introduced in 2016, has also had an effect.
Those buying a residential property that is not their main home now pay an additional three per cent stamp duty for the first £125,000 and five per cent instead of two per cent on the portion between £125,001 and £250,000 and eight per cent on the amount above £250,001.
David Cox, Chief Executive of the ARLA, the Association of Residential Letting Agents, says “The number of landlords exiting the rental market is rising.
“Investors have faced a huge amount of legislative change over the last 18 months and as costs rise, they are being driven out of the market and new ones are being deterred from entering. The Government is developing a joined-up approach for legislating the private rented sector, but until this has been put into action and the market is made more attractive for landlords, rents will continue to rise, competition will intensify, and tenants will continue to suffer.”
Will Linley adds: “The scarcity of rental property is compounded by the fact that more tenants are renting the same home for longer. Our average length of stay now stands at a record 21 months.
“The government's ban on fees is also likely to heap pressure on rents as landlords look to recoup these extra charges passed on to them.
“It's a scenario that's already been played out in Scotland, where a fees ban has been in place for some years, and the likelihood is that it will replicate itself here in Yorkshire too.”
There are hopes that the nascent build-to-rent sector will plug the gap in supply. Moda is set to start work early next year on the first phase of the SOYO development at the old Quarry Hill site in Leeds, which will deliver 515 rental homes, and there are a number of other schemes in the pipeline.
However, Will Linley says: “Build-to-rent is tailored to appeal more to couples and single professionals seeking city centre living rather than families.
“The concept is well-trumpeted as a silver bullet but, here in Yorkshire at least, it has missed an opportunity to address people's preferences for rental properties in out-of-town suburbs, where unmet demand is at its highest.”
Linley and Simpson, which has ambitious expansion plans, believes the Tenant Fees Bill will further drive up standards and rid the industry of the rogue operators who continue to plague it by disregarding their responsibilities, particularly in safeguarding client money..
National agency Knight Frank believes that the private rented market is likely to be characterised by falling overall supply over the coming years, which will put upward pressure on rents.
It predicts an average UK rise in rents of two per cent in 2019 and a 12.6 per cent increase in rents between now and 2023.
Savills say that rental growth will track house price increases, averaging 13.7 per cent over the next five years. It adds that tightening access to mortgage finance and limited social housing supply is driving demand for privately rented homes at all price points. This is particularly true in London, where rents are expected rise by 15.9 per cent by 2023.
Lucian Cook of Savills says: “A continued rebalancing of the composition of the market is expected, with mortgaged buy-to-let investor purchases falling by -23 per cent. This will add to upwards pressure on rents, particularly in London, as investors look to lower value, higher yielding market.