The rental market is strong
Overall the prospects for the rental market are fairly healthy, there are risks but it could be helped by economic uncertainty.
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These are mainly to do with regulations and policies affecting landlords. The uncertainty about the availability of credit and additional taxation on purchase, sale and ongoing tax reliefs is still to play out. Wider uncertainties about economic performance, particularly growth in wages and employment, are also crucial.
Yet with household finances tightening, the incentive to take on additional debt and buy a home is falling, which should push demand to the rental sector and support rents. However, as rising inflation increases the costs of living and income growth remains low, the rate at which rents rise is likely to be curtailed.
In 2016 rents held up better in the North of the UK, reversing the trend of previous years. Data from Countrywide’s Lettings index shows that growth in the average rent achieved has been driven by Northern England. Taking the North East, North West and Yorkshire & Humber regions together, rents have risen faster there than in any other part of Great Britain. A quarter (25%) of tenants renewing their contract in Northern England saw their rent increase, up from 16% last year. That says something about the balance of demand and supply in the North, and suggests that there is still room for healthy yields for investors.
Overall we expect rents to rise broadly in line with income across the country as a whole. There will likely be regional variation though with rents rising in London and the South East, but cooling in the East as demand falls away too. Further North, the balance of supply and demand will be key, but in urban centres in particular the rental market will remain important and that will help to support rents and returns for investors.
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