After being hit by changes to tax, landlords who stay in the sector can be encouraged by new research that suggests a rise in rents due to a shortage of rental properties.
According to the Royal Institution of Chartered Surveyors (RICS), 22 per cent of estate agents now say the number of new rental properties coming onto the market is falling.
With rental properties in short supply yet demand among tenants remaining steady, rents are expected to increase.
Confirming this good news for landlords, RICS said the number of tenants looking for a new home was up four per cent during the last three months.
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How much will rents rise?
According to RICS, this imbalance between the number of tenants and homes available is expected to cause a rent increase of two per cent in the next 12 months.
And the trend is forecast to continue, leading to a rise in rents of 15 per cent by the middle of 2023. East Anglia and the South West are likely to see the sharpest growth.
Where has the supply of rental properties decreased?
RICS said the decline in rental properties reflects the shift in the buy-to-let market, due to tax changes that are seeing smaller scale landlords leave the sector.
It said the drop is noticeable in ‘virtually all parts of the country to a greater or lesser extent’.
Simon Rubinsohn, chief economist at RICS, commented:
“The impact of recent and ongoing tax changes is clearly having a material impact on the buy-to-let sector as intended.
“The risk, as we have highlighted previously, is that a reduced pipeline of supply will gradually feed through into higher rents in the absence of either a significant uplift in the Build to Rent programme or government-funded social housing.
“At the present time, there is little evidence that either is likely to make up the shortfall.”
Tax changes have hit buy-to-let
Tax changes include the withdrawal of tax relief that landlords can claim on mortgage interest and a three per cent stamp duty surcharge on buy-to-let properties.
For those landlords who stay in the property rental market, an increase in rents marks some good news following several years of tax hikes.
As Brian Murphy, Head of Lending at Mortgage Advice Bureau, points out, the RICS research shows that there is ‘an opportunity for greater profits from those investors who choose to stay in the sector.’