What does 2017 hold for the UK rental market?

If you look back on 2016 it was not a good year for the UK buy to let sector. A reduction in tax relief, increase in stamp duty and forthcoming stricter lending requirements have not exactly been positive. This comes at a time when demand for UK rental properties is rising and is expected to do so for many years to come. So, will the dark clouds which have hovered over the UK rental market disperse in 2017?

Political interference in rental market

While politicians may wrap it up as a means to control the buy to let market and avoid a boom and bust scenario, the real situation is very different. Governments are struggling to balance their budgets and with UK property continuing to increase in value it was only a matter of time before the government milked the UK buy to let sector (again!). Over the years this has proved to be very lucrative for the politicians especially when painted as an attack on the rich.

Reduced tax relief, increased stamp duty and expectations of more cost rises to follow have not exactly filled the buy to let market with confidence going forward. At this moment in time many buy to let investors are reconsidering their long-term position in the UK and indeed there is a suggestion that some investors will begin to reduce their exposure.

Buy to let transactions falling

While critics of the buy to let market will suggest the doom and gloom has been overdone, the simple fact is that the number of buy to let transactions in England and Wales over the last 12 months has fallen by more than 50%. Yes, despite the fact that 7.2 million households are expected to find accommodation in the private rental market by 2025 (as opposed to 5.4 million at the end of 2015) punitive tax rises are not helping the situation.

Historically many would have looked to the council/social housing sector for accommodation but different policies around the country and reduced investment have not strengthened the position of this option going forward. So, it will be left to private investors to supply an ever-growing number of rental properties to the UK market.

Will the government backtrack on recent changes?

Even though the UK government would face severe criticism if recent changes to the UK property market were rescinded, there is scope to do so. The recent decision to abolish letting agent fees (as one example) has been put out to “consultation” and could very quickly be cancelled. At the time of the announcement many were baying for the blood of property investors and it played into the public mood. However, behind-the-scenes buy to let investors and letting agents have been pleading with the government to dilute their proposed changes.

The bottom line is that the UK will soon run extremely short of rental properties as a consequence of ever increasing house prices moving out of the reach of first-time buyers. It is not the answer to introduce tax after tax after tax on the UK property market and in particular the buy to let arena. The problem is that a reduced supply of private rental properties will see demand grow for those available which will in turn push rents higher. Has the government really thought through the consequences of recent changes?

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