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Industry news


Private rents shrink towards year end as falling rents in London drag down the UK average


R


ents across the UK began to shrink for the first time in over half a decade towards the end of 2017 as a two-speed market emerged


between London and much of the rest of the UK. The average rent paid for a PRS property grew by


0.53 per cent in 2017 (year to date), with falling rents in London (minus 0.83 per cent) weighing down otherwise resilient rental growth elsewhere (1.27 per cent). These are the findings of the second edition of


the National Rent Review from buy-to-let lender Landbay, which also reveals how much millennials can expect to spend on rent in their lifetime. Across the UK rents fell by -0.01 per cent in


November 2017, the first time rental growth has entered negative territory in at least five years. The average UK rent has now plateaued at a record £1,196 per month, up from £1,190 at the turn of year. Removing London from the equation puts average rents at £759, up from £750 at the turn of the year, an extra £9 per month or £109 per year. The slowdown in rental growth has not been


consistent across the country. The East Midlands (2.13 per cent), South West (1.63 per cent) and East


England (1.57 per cent) experienced substantial growth in 2017 and are expected to climb further in 2018. The North East has also seen rents grow at a faster rate in 2017 than at any other time in the past five years (0.65 per cent).


MILLENNIALS Despite the narrowing gap with the rest of the country, London rents remain, on average, 2.5 times greater than those across the rest of the UK (£1,871 vs £759). John Goodall, CEO and founder of Landbay


said: “Landlords have faced up to challenge after challenge over the past two years, from stricter regulation, reductions to tax relief, and a significant stamp duty tax hike when buying a buy to let property. We expect upward rental pressure to be just around the corner. Without a radical house building plan for purchase as well as purpose-built rental properties, rental prices are in danger of soaring over the coming decades.” Millennials renting an average-sized property


outside of London, who begin their tenancy at age 21, will spend an average of £110,830 in household


HA surpluses soar on flat turnover, but management and repairs spending down


The combined accounts for the housing association sector provided a mixed set of messages about how social landlords coped with the first year of the forced one per cent cut in rents. Every year the Homes & Communities Agency


publishes the combined or global accounts for all HAs who own or manage one thousand homes or more. The strong health of the sector in spite of the rent cut will have surprised many as the figures show a strong year of performance with surpluses increasing markedly while day to day costs have been cut. Headlines from the accounts show: • Turnover was unchanged at £20bn, with the rent reduction offset by additional rental income from new properties;


• The underlying net surplus was £3.5bn – a 7 per cent increase on 2016;


• Operating margins have increased by 2 per cent to 30 per cent, largely through reductions in ongoing expenditure;


• The average cost of each housing unit fell by 7 per cent to £3,698;


• The total spent on major repairs fell by 14 per cent to £2.1bn, while management costs were also down, by 9 per cent to £2.6bn;


• Debts increased by £2.9bn to £69.6bn; with total debt at 20 times the underlying surplus;


• £10bn was invested in new housing (including social housing, market rent and properties for shared ownership and outright sale) and £1.6bn in existing stock. A 15 per cent increase on 2016; and


• The sector completed 41,000 new homes, down from 44,000 in the previous year.


Some 18,000 homes were sold or demolished


during the course of the year, which means that by the end of March 2017 the number of social homes in management by HAs increased to 2,761,000. A growing area of activity is the development or purchase of homes for market rent as well as investment properties.


FEWER LANDLORDS Rent lost on empty properties fell by 11 per cent compared to 2016, while current tenant arrears also decreased from 4.6 per cent of gross rent in 2016 to 4.4 per cent in 2017. Bad debts remained at 0.7 per cent of gross rent in both years It is clear from the accounts that the sector is


24 | HMM January 2018 | www.housingmmonline.co.uk


rental payments before buying their first property at the average first-time buyer age of 32. For those living in the capital, where property prices and rents are significantly higher, the average household will have spent £273,210 on rent by the time they take their first step on the property ladder. However, as it stands today, 41 per cent of


millennials do not expect to ever own a home of their own, relying instead on the private rental sector to support them into old age. For this emerging generation of lifetime renters, the total amount they will spend on rent in their lifetime will be an average of £1.1 million if living outside of London. Again, those choosing to live in the capital will spend 2.5 times this figure; a total of £2.6 million. Meanwhile, those renting throughout their life


and retiring at the future state pension age of 68, will have to save for 15 years of rental payments in retirement, and will therefore spend some 44 per cent of their household disposable income (£2.4m) on rent (£1.1m) by the time they reach the average life expectancy of 82.


contracting and has fewer landlords, as a result of mergers. In 2011 there were 366 HAs which managed more than 1,000 homes, but by 2017 the number had fallen to 319 and the trend shows no sign of stopping as social landlords seek efficiency savings and increase their output of new homes. Commenting on the figures Fiona MacGregor,


Director of Regulation at the HCA said: “The sector is continuing to invest substantially in existing stock and new supply and as a whole is well-placed to respond to the changing operating environment. The sector has consolidated over recent years and there are now a small number of very large providers whose results can have a material effect on the overall results. “Decrease in management costs and major


repairs expenditure demonstrates how the first 12 months of rent reductions have been managed. While lower repairs spend partly indicates the progress being made towards reducing non-decent stock we will continue to encourage providers to have a rigorous, evidence-based approach to expenditure and investment, which ensures that housing is sustainable for the long term, responds to tenant needs and gives good value for money.” The next set of global accounts are expected to


see a reversal of the fall in major repairs expenditure as HAs respond to the Grenfell Tower tragedy with increased investment in energy efficiency and health and safety measures to tenanted stock, in particular fire safety work.


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