The RICS (Royal Institution of Chartered Surveyors) have speculated in their latest report that rents for investment properties and buy to lets will increase over the next few years as more and more landlords pull out of the PRS (private rented sector). In fact they think that over the next five years rent increases will outpace house price increases, at 3% against 2%.
Why are landlords pulling out? According to the report because of Stamp Duty changes (there’s now a 3% surcharge on investment properties and second homes) and because of the phased withdrawal of mortgage interest relief – the ability to off-set mortgage interest against rent calculating profit from rent is being withdrawn.
Anecdotally I think I have seen this happening for some time in my investment area. More and more properties are being listed for sale by auction – the numbers are far higher than this time two years ago, and so I assume (and it is only an assumption which is NOT backed up by scientific research) this is a sign of landlords/investors selling as they realise what a bind the tax changes are going to be.
Whilst the politicians might be happy that their plan is working (although the chief architect George Osborne has now jumped ship and is spending his days antagonizing Theresa May as editor of the London Evening Standard, so presumably gives little thought to the problems he has caused and left behind) the flip side is less properties available to rent means rents go up up.
Is that what they wanted to happen?Probably not, but the whole thing clearly was ill-conceived and no one took the time to think about what would happen – it was pure politics and not economics.
So what next? I hardly dare say this in case a politician reads it and jumps om it as a ‘good idea’, but rent control? Actually, not a good idea. It’s been tried and tested and found wanting – it totally distorts the market and reduces the numbers of available properties even further.
Anyway, for those property investors who are prepared to stick around, and who plan for tax (the received wisdom is that at the moment buying into a limited company gets around some of the resultant problems) the prospect of reduced competition from other ‘landlords’, and increased returns in the form of rent must be good news.
If you’d like to see what the RICS said, please click this link: