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June 07, 2017

Rents follow house prices with first fall in seven

Rental prices are in decline for the first time in seven years, a decrease not seen since the depths of the financial crisis, according to figures compiled by the landlord insurance provider HomeLet.

The figures follow the first fall in house prices for three successive months since the financial crash and add to the sense that the housing market is cooling.

"The average monthly rent on a new tenancy that started in May was £901, which was down 0.3 per cent on the May 2016 figure of £904," says The Guardian. It's the first time the annual growth rate has fallen since December 2009.

In London, where both house prices and rental prices are well above the national average, rents have plunged by three per cent over the past year, from £1,572 to £1,502.

"Analysts point to a number of factors slowing rental growth," says the Daily Telegraph, including low wage growth, job security concerns and increasing mortgage provision for first-time buyers with small deposits. These factors have a negative effect on tenant demand.

In short, there are a large number of first-time buyers. Those currently renting cannot afford to pay ever-higher monthly rates.

At the same time, costs for landlords are rising because of tax reforms that will limit mortgage interest relief. Margins are therefore being squeezed, a disincentive to would-be landlords.

This means there are are fewer buy-to-let investors in the market, a key reason, many believe, for the recent drop in house prices.

Martin Totty, HomeLet's chief executive, says landlords "are now facing a difficult balancing act between ensuring rents are affordable for tenants in a low real wage growth environment while covering their own rising costs".

Nationwide's house price index has tracked marginal house price declines for the past three months, while other indices are reporting slower growth rates.

But on an unadjusted basis, Nationwide found house prices still edged up in May. The building society's economists still reckon prices will rise overall this year.