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Private sector rents in the UK are set to increase modestly in 2018, hindered by policy changes over recent years, according to the latest lettings market forecast.

Supply across the private lettings market seems likely to face significant headwinds going forward as the 3% stamp duty surcharge on buy to let sales has knocked investor demand substantially.

The forecast report from the Royal Institution of Chartered Surveyors (RICS) points out that during the year leading up to its introduction, the number of buy to let mortgages being advanced averaged 10,000 per month while over the following 18 months, the number of buy to let mortgage approvals has averaged just 6000.

The challenges do not stop there however, it also points out. The withdrawal of mortgage interest tax relief, coming in stages up until 2021/2022, it says, will further reduce the appeal of buy to let as an investment.

The RICS housing market survey was used back in August to gauge perceptions on the net change in the number of landlords in light of the less favourable policy backdrop. Quite emphatically 83% of respondents felt there would be more landlords exiting, rather than entering, the market over the coming 12 months.

The picture is pretty similar at the three year horizon, with 76% of contributors feeling there would be greater numbers of landlords exiting the market and RTCS says that given buy to let accounts for around 95% of the private lettings sector, it’s difficult to see Build to Rent developers fully plugging this gap. ‘Consequently, this does not bode well for rental affordability going forward,’ the report points out.

It also says that there are already growing signs that affordability constraints are taking their toll on demand. Indeed, across the UK as a whole, tenant demand stagnated in the three months to October and the net balance of just +1% was the softest quarterly reading since 1999.

Nevertheless, alongside this, landlord instructions have declined in each of the last three quarters, meaning that even with the flat demand backdrop, fresh supply in net balance terms is falling short.

Consequently, rental growth expectations remain in positive territory but the forecast is pointing to a further moderation in the pace of rental gains towards 1%, from 1.6% at the moment.

In London, the near term rental growth expectations series is signalling a flat to marginally negative outlook for 2018 which comes on the back of fairly sustained period over which demand has been weakening in the

‘Feedback tells us there is a mismatch between landlords’ desired rental levels and tenants ability to pay, with the resulting reduction in activity meaning supply in the London lettings market is not being absorbed by demand for the time being,’ the report explains.

‘The longer term view on rents, both at the national level and across London, is that growth will strengthen to average a respective 3% and 2% per annum over the next five years. Critically, these projections outstrip those for prices over the same period, adding further weight to the idea that supply pressures could be even more acute across the lettings market,’ it concludes.

Source: Property Wire

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