Thursday, 3 August 2017

Grantham Buy-To-Let Predictions up to 2037

On several occasions over the last few months in my Grantham Property Blog, I predicted that the rate of rental inflation (i.e. how much rents are rising by) had eased over the last year. At the same time  I felt that in some parts the UK, rents had actually dropped for the first time in over eight years. Recent research backs up this prediction.

Rents in Grantham only grew by 3.3% in the last 12 months for new tenancy’s ( i.e.  not existing tenants experiencing rental increases from their existing landlord). When we compare that current rate with the historical rental inflation in Grantham, an interesting pattern emerges..

·      2016  - Rental Inflation in Grantham was 7.9%
·      2015 - Rental Inflation in Grantham was 3.0%
·      2014  - Rental Inflation in Grantham was 3.9%

The reason behind this change depends on which side of the demand/supply equation you are looking from. On the demand side (from the tenants point of view) there is the uncertainty of Brexit and the fact salaries are not keeping up with inflation for the first time in three years. Critically this means tenants have less disposable income to pay their rent. As an aside, it is interesting to note that nationally, rent account for 29% of a tenant’s take home pay (Denton House).

On the supply side of the equation (landlords point of view), Brexit also creates uncertainty. However, the biggest issue was a massive upsurge of new rental properties coming on to the market in late 2016, caused by George Osborne’s new 3% stamp duty tax for landlords in the first part of 2016. This meant a lot of new rental properties were ‘dropped’ on to the rental market all at the same time. The greater choice of rental properties for tenants curtailed rental growth / inflation. This was compounded with a slight softening of Grantham property prices.  Figures from Bank of England suggested first time buyers rose over the last 12 months, as some were more inclined to buy instead of rent. Together. these factors played a part in the ongoing moderation of rental growth.

The lead up to the General Election in May didn’t help, after all people don’t like doubt and uncertainty. So now we have a mandate for going forward for the next 5 years, that has removed the block tenants were having in order to make the decision to move home.

Whether it ‘hard’ or ‘soft’ Brexit negotiations (and with the Election result the Tory’s might have to be ‘softer’ on those negotiations), the simple fact is, we aren’t building enough properties for us to live in. Both in Grantham, the East Midlands and the wider UK long-term population trends imply that rents will soon be growing faster than inflation again. Look at the projections by the Office of National Statistics.

Population Estimates for South Kesteven District Council over the next 20 years
2016 (actual)

Tenants will still require a vibrant and growing rented sector to deliver them with housing options in a timely manner. As the population grows in Grantham and wider afield any restriction to the supply of rental properties, (brought about by poor returns for landlords) cannot be in the long term best interest of tenants. Simply put rents must go up!

The fact is this, I see this as a short-term blip, and rents will continue to grow in the coming years. With rents only accounting for 29% of disposable income of tenants, the ability for most tenants to absorb a rent increase does exist.