Rents in London continue to break records and are already well above those recorded in the rest of the United Kingdom. Between March 2020 and May 2023, rent rose by a fifth, reaching average prices of £1,275 per month (€1,491), according to data from Savills reported by The Financial Times.
Many landlords are passing on the rate increases to their tenants, as most of them bought their homes at an attractive interest-only mortgage rate. Moreover, rental demand is increasing as many people are unable to afford to buy a home, which pushes them to look for rentals.
Similarly, the lack of halls of residence and student accommodation is causing more students to look for rentals, and high levels of immigration are observed. This is causing an excess of demand compared to the available supply, leading to impossible offers from those interested in renting, with some potential renters even offering to pay several months' rent in advance to secure a property.
Buy-to-let housing is losing profitability
Renting currently provides housing for some 4.8 million households in London, which is one-fifth of the UK total. As such, the risk of this housing stock shrinking could exacerbate pressure on a sector that experienced its greatest boom at the turn of the century. In the early 2000s, buy-to-let housing became particularly prominent. However, the current boom in interest-only mortgages in the British capital has meant that most Londoners are facing significant cost increases as rates rise.
Not surprisingly, the average rate on two-year buy-to-let mortgages has risen to 6.6% at the end of August, up from 4.5% a year ago. This increase has forced many landlords to raise the prices of their properties to avoid making a loss. Moreover, stricter rental market regulations and removing tax relief on interest on these types of mortgages have made these assets less attractive.
On the other hand, this has also triggered a notable increase in repossessions of properties by lenders in the country, up 7% from the previous quarter. Likewise, around 1,870 homeowners have fallen behind in paying close to 10% of the total outstanding loan. In many cases, buy-to-let mortgages' loss of profit has led owners to decide to sell their rented properties.
London is among the hardest hit by its high fees
In particular, high mortgage rates in London have led to lower returns on such properties than in other parts of the country, resulting in a further reduction in supply that threatens to put more pressure on those tenants who cannot afford to buy a home and are not eligible for social housing.
Furthermore, local support for the most vulnerable households has not kept pace with rising rents, making it difficult for these families to compete on a level playing field in the market. The situation is further complicated by the fact that in the United Kingdom, landlords can vacate their homes with two months' notice without cause once the tenancy has reached six months' duration.
This rule is expected to be removed with the rent reform bill that Parliament has been considering since 2019, only increasing the vulnerability of families with lower incomes. In search of affordable housing, many are being pushed to the outskirts of London, which are already suffering the same sharp increase in costs.
Article seen in (The Financial Times)
Extreme renting: London’s bidding war escalates as rising rates hit buy-to-let