Property website Rightmove is forecasting a 4% rise in rents outside of London in 2017, driven by less availability of rental stock resulting from buy-to-let tax relief changes in April.
Rightmove said rents are set to increase by 4% outside of the capital, as a reduction in the supply of rental stock puts upwards price pressure for tenants.
Mortgage interest relief for residential buy-to-let properties is set to be reduced to the base income tax rate, which is 20%.
It is due to be phased in over a four-year period starting from April. Landlords are currently able to claim tax relief on the top rate of tax of up to 45%.
The changes mean landlords will no longer be able to deduct mortgage interest payments or any other finance-related costs from their turnover before declaring their taxable income.
Property experts have warned that this could force landlords to sell up, reducing the available rental stock.
Sam Mitchell, Rightmove’s head of lettings, said: “If the tax changes being phased in from this April lead to even fewer buy-to-let purchases and some landlords deciding to sell, then a tightening of supply in some areas will lead to increasing rents. We forecast that asking rents could rise by 4% outside London by the end of 2017, though in London prices are likely to stay flat.
“This year will be one of caution for buy-to-let investors due to tighter lending criteria and increased stamp duty. We definitely won’t see the spike in first quarter purchases that we saw last year as landlords rushed to buy before last April’s new stamp duty deadline.”
All regions except London recorded a rise in asking rents in 2016, with prices up annually by 3.0%, just slightly lower than 2015’s rise of 3.7%.
Northern regions led the way as the year ended, with Yorkshire and the Humber up 4.5% and the North West up 4.4%. In London, more available rental stock throughout the year led to a 4.4% annual drop in prices across the capital.
The top five areas with the highest rental growth in 2016 were scattered across Britain, with Swansea at number one reporting an 11.4% annual increase, followed by Gillingham in Kent with asking rents up 11.1%. Bath, which comes in third with a 10.5% increase to £1,148 per month is the location that reported the highest annual growth for asking prices in 2016, up 17.8% to £485,491.
Those buy-to-let investors planning to expand their portfolio in 2017 and looking for the best yields could consider places in Merseyside and Lancashire where they could get yields of over 7% if they buy the right property that would suit families or young professionals looking for long-term rental contracts. Bootle in Merseyside currently offers a yield of 9.3%, Birkenhead is 7.5% and in Lancashire Burnley’s yield is 7.2% while Accrington is 7.1%.
“Investors looking for the strongest yields could consider investing in certain areas in the North West where both demand and yields are high. Those with a number of properties in the capital may find that tenants are more price sensitive, so setting realistic rent levels will be the key to avoiding void periods. In order to mitigate this, we would recommend landlords asking for longer tenancies to help secure a steady rental income over the next few years while they adjust to what the tax changes will mean for them,” said Mitchell.
