Why rents may have peaked - and what you need to do about it

Landlords have enjoyed two years of unprecedented rent rises – but evidence suggests the market may have found its level.

Spiralling demand has combined with low mortgage availability and general economic uncertainty to produce an environment in which rental yields have rocketed.

But the upward trajectory cannot continue forever. Rent is hoovering up an ever-increasing portion of people’s cash. In many parts of the country, renters are spending two-thirds of their income just to keep a roof over their head. They simply cannot cope with continuing rent rises.

It is for that reason that some experts are now encouraging landlords to rethink their rents.

According to Caroline Kavanagh, managing director at Townsends Lettings, prices in London may already have peaked. “For a long time, landlords have been in the driving seat but the start of the new year seems to have brought about a change in tenant attitude, one that is no longer willing to just accept price rises,” Kavanagh says.

Demand for rental property remains high – but in some parts of the country it seems unlikely that this will continue to translate into upward pressure on prices. Rents are, to a certain extent, limited by reasonable expectations of tenant income. With unemployment continuing to rise, and with real-terms pay cuts remaining the norm for those still in work, the ceiling of affordability will soon be reached.

What does this mean for me?

Landlords need to be prepared to negotiate on rents. It is no longer enough to assume that you will be able to dictate the price for your property – particularly if you are operating in an area that has already seen significant price hikes.

You should note that this doesn’t mean the bottom has suddenly fallen out of the rental market. In fact, it suggests a new streak of stability in a sector that has recently been riven with unpredictability. It seems that the rental sector may be about to find its ceiling – and many commentators now expect prices to plateau around that point.

Landlords therefore need to be prepared to handle pricing and negotiation in a more sensitive manner. Squeezing every last penny out of the rent may not be the most efficient strategy. Instead, you should consider forgoing a portion of your planned rent rises if it means that you can hold onto good tenants. Remember that arrears and other financial problems are likely to become more acute in the coming months – and reliable tenants are therefore very valuable.

Read more about negotiating rent increases.