Rental Inflation at Risk of Reaching Affordability Ceiling, Warns HomeLet

Rental inflation was somewhat erratic over the past year, peaking at 4.7% in June before dropping to the lowest annual rate of 1.7% in December, reports HomeLet.

The firm’s December Rental Index shows that annual rental inflation on new tenancies fell from 2.9% in November to the lowest rate of the year in the last month of 2016.

Rental Inflation at Risk of Reaching Affordability Ceiling, Warns HomeLet

Rental Inflation at Risk of Reaching Affordability Ceiling, Warns HomeLet

December’s minimal increase was much lower that the annual rate of rental inflation recorded 12 months earlier, when it stood at 3.8%.

Across the UK as a whole, the average rent on a new tenancy commencing in December was £892 per month, compared to £877 in December 2015, found HomeLet.

In Greater London, rents rose from £1,478 to £1,508 over the same period – a much smaller increase of 2% when compared to the rate of 6.8% seen in the middle of the year.

The Chief Executive of HomeLet, Martin Totty, comments on the figures: “While demand for rental property remains strong, landlords always have to be mindful of tenants’ ability to pay higher prices.

“The data recorded by the HomeLet Rental Index during the second half of last year suggests we have now begun to approach an affordability ceiling, particularly in areas of the country where rental price inflation was previously highest.”

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Totty looks ahead: “While the industry has speculated that landlords will increase rents to mitigate the impact of factors, such as the impending reduction in mortgage interest tax relief, this may prove problematic given the pricing trends we’re currently seeing in the market, and the potential for higher inflation and a squeeze on real earnings in 2017.

“The private rented sector is now having to cope with a series of disruptive elements, just at a time of great economic uncertainty, and amid a continuing systematic imbalance between supply and demand for residential property. The assumption that landlords have sufficient means to bear higher costs will soon be tested. Tenants must hope they do.”

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