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Record Number of Home Owners Now Renting
A report carried out by letting agents Hamptons has revealed that a record number of home owners looking to sell their property are turning to the rental market as opportunities dry up. The letting agent has found that compared to July of 2020 there are roughly 27% less properties available to purchase on the market in the same month of 2021. This shows that home owners looking to make the transition from one property to another are unable to make the move as available homes have been snapped up at a surging pace. The report goes onto state that of all the newly established tenancies across the UK throughout the first half of 2021, some 10% have been entered into by those looking to sell their existing home; the highest figures seen since 2016. Hamptons shares that this shift from home owner to renter could see 117,200 new tenants enter the rental sector during 2021.
But the letting agents has revealed that whilst this on face value may seem like a move made by home owners out of necessity, as opportunities to purchase a new property are far between, it is more likely an opportunistic approach. This scarcity in available homes has seen those selling their properties achieve record prices on the market, with these increased returns looking to be put towards a properties seeing equally high offers and completion. Rather than see these profits squandered in a bidding slugging match for their future home, sellers are tuning to renting a property until they are in a strong enough position to purchase.
These tenancies sought out by those seeking to leverage the maximum spending power of their sold home have been found to typically only last around six months, with many entering into periodic, or rolling tenancies whilst continuing the search for their next home.
Aneisha Beveridge, head of research at Hamptons letting agents lent some explanation to their findings, stating that, “moving into a rented home to beat the end of a stamp duty holiday is not new, it is increasingly being used as a stop-gap by house hunter faced with a lack of stock to buy.”
Alongside this the lockdown period saw thousands of renters flee the city centre locations and business hubs to more rural surroundings and greener pastures, with Aneisha saying this could have informed some of the shift. “Renting before buying has also been driven by house hunters making more long distance moves, with growing numbers looking to live in areas they know less well, many more are trying before they buy.” Whilst moving into a rented home to get to know an area often isn’t peoples preferred option, its nearly always more cost effective than buying the wrong house in the wrong street.”
Average Rent Is at an All-Time High
Interesting the same month of July 2021 saw the amount landlords are asking their tenants to pay in rent reach a record high. The average rental charge seen in July 2021 reached £1,029 a 6.6% increase on the same month in the previous year. This surge comes after a year of periodic decline in rental prices, with the UK seeing a spike of 8.7%, or almost £900 a month when excluding the nation’s capital of London.
Taking the crown for the highest increase in rental prices is the South West of England, with the average rent costing tenants £989 each month, a 12.9% rise on July of the previous year and a 4.3% increase on the previous month.
As of August 2021 these figure remain largely unchanged with the Home property website stating that the East of England has seen a 10.1% increase in rental prices, somewhat overshadowed by the 11.7% surge being realised across the West Midlands.
Despite seeing a year of rapidly declining ret prices, in July London recorded its second moth of price increases in just as many months, with a 2.1% rise to an average rent of £1,645 each month being followed by a 2.4% increase. This is said to be fuelled to not only a quickly thinning supply of rental opportunities across the nation, but also as the flock of office workers look to return to the office without the burden of a lengthy daily commute. This uptick comes after rents within the Tower Hamlets, Kensington and Chelsea areas plummeted by 8.5% and 7.5% respectively; seeing the average rent settle at £2,550 in June 2021.
The Risk of Rent Arrears
It is difficult not to address the increase in rental prices without addressing the widespread concerns being seen by landlords concerning rent arrears. The sector has unfortunately been no stranger to rent arrears over the course of the lockdown period, with many rental property owners condemning the action taken by the UK government. Some claimed the implementation of the eviction ban was redundant as there was not enough distinction being made between the tenants that had their income affected and were not able to pay their rent, and those that simply chose not to. Naturally this lead to some landlords arguing they no longer had the same control over their investments and could not take any recourse against tenants that were knowingly in breach of their tenancy agreement by withholding rent.
As can be expected this saw many landlords seek out alternate methods of securing their rental income. Typically, if a landlord feels that their aspiring tenant may fall behind on their rental obligation but still wishes to rent the property to them, they could request the tenant obtains a guarantor; a party that would become legally responsible for any missing rental payments. However, with the coronavirus leaving a record number of households with an uncertain income, many believe that they would not pass the criteria to become a guarantor as they would be subject to a financial assessment similar to that of the referencing process.
Other than taking out the typically expensive rent guarantee or tenant default insurance policies, landlords are left with few ways in which to safeguard themselves from rent arrears. Commonly rental property owners would have historically requested the maximum tenancy deposit from their aspiring tenants, as this can be used to recover rent arrears, alongside any damage to the rental accommodation at the end of the fixed term. However, much to the disappointment of property owners, in 2019 with the implementation of the Tenant Fees Act, a limit was placed on the amount a landlord could ask for this deposit. Although the exact limit hat is placed on the amount a tenant is required to pay for their tenancy deposit is determined by the rental income generated by the property in the overwhelming majority of cases the tenancy deposit will be no more than five weeks rent. However, if the amount the tenants are expected to pay each year in rent is over £50,000, then the landlord is able to ask for the equivalent cost of six weeks rent for the tenancy deposit.
Whilst this may seem like a significant amount for a tenant or prospective renter to pay before moving into a property, from the landlord’s perspective this is a nominal amount that will only allow them to recover a single month’s rent of arrears, providing that they don’t have to make deductions any signs of damage or neglect within the rental property too. With this in mind landlords have found that whilst the tenant fees act restricts the amount they are able to take from their tenants for the tenancy deposit, it does not place any such threshold on the amount of rent they can request their tenants pay in advance.
To this end recent months have seen rental property owners ask tenants for an increasing amount of rent in advance in order to protect themselves from rent arrears and secure a rental income. This comes as little surprise as the government revealed earlier this year almost half of all UK landlords are dependent on a single rental property for their income. Although there is an absence of a strict limit to the amount a landlords are able to ask their tenants to pay before moving into the rental property, most commonly only a single month’s worth of rent is required; however it is becoming increasingly common for property owners to ask their tenants for up to six months’ worth of rent upfront.
Although the practice of taking advanced rental payments does offer increased security to landlord during a period of economic hardship, some have labelled the move as underhanded, directly opposing the intention of the Tenant Fees Act to make the rental space more accessible by removing high upfront costs to renting a property. The Deputy director of tenant campaign group Generation Rent commented, “For Years generation rent has heard from people who tell us letting agents won’t let to the if the rent amounts to more than 40 per cent of their income… we understand from members and renters seeking advice that it has become more common in the past year.” The National Residential Landlord’s Association has similarly voiced that, “We encourage landlords to look for alternatives to asking for high levels of rent upfront. Where necessary, it is usually simpler to obtain a guarantor or suitable insurance product.”
What Are the Benefits of Renting Over Owning a Home?
As made clear by the last 18 months or so, one of the more clear and tangible benefits of renting over owning a home is the unrestricted freedom. This is inherent to the tenancy agreement with the majority of tenancies lasting for an average of 12 months, seeing tenants relocate as frequently as they wish and never be locked to a specific property or area. Whilst it could be argued that this would involve the hassle of moving each year, it afford tenants the opportunity to try different regions of a city, new properties and places that offer something truly unique. This flexibility also provides tenants with complete practicality in their working commitments, seeing them move closer to avoid commutes or relocate to explore new ventures. It goes without saying but when owning home outright, this quite simply isn’t available with the months, sometimes years it takes to sell a property not only preventing this, but being synonymous with being a home owner.
Contrary to those that swear by having a mortgage payment, renting your home can offer increased financial security as the financial commitment is periodic and consistent. The predictable nature of rent costs, alongside paying for utilities allows tenants to enjoy this financial transparency for the duration of the tenancy with most landlords being open to rent negotiations if the tenancy is renewed. With this being said, a mortgage paying would share some of these attributes as the amount home owners expect to pay each month is also constant, however there are many unexpected costs that tenants are not exposed to.
Perhaps most beneficial of these is the exorbitant costs or furnishing a property, allowing tenants to move into a new home with all appliances, goods and necessities being readily available as soon as the keys are handed over. Not only that but if any of these appliances, furnishings or other, more significant aspects of the rental were to need remedial work to be carried out, the responsibility firmly resides with the landlord.
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