Just as the majority of landlords in the UK were beginning to think that the outlook for their businesses is decidedly rosy, a report from industry economists, Capital, suggests there is a distinct chance that some residential landlords may end up with a thorn in their side.
The boom in rental yields that landlords have been reporting over the last 12 months may be coming to an end according to Paul Diggle of Capital Economics. He believes that the austerity measures imposed on the nation by the Coalition Government may well lead to unemployed tenants trying to re-negotiate their monthly rent, leaving many landlords in an awkward position. He also believes the cap on Local Housing Allowance (LHA) could cause problems for landlords in the near future.
Speaking about the coming years he said “Many of the reasons why more tenants will have difficulty paying their rent will also lead to borrowers facing problems meeting mortgage payments. But while borrowers might be able to come to arrangements with their lenders to extend the term of their mortgage or take a payment holiday, tenants have to find relief by negotiating reduced rents. The upshot is that, on average, landlords will struggle to see more than 2% year-on-year growth in rents this year and next.”
Many landlords have already expressed their reluctance to reduce their rents when the cap in LHA comes into force, but the prospect of their properties enduring long void periods may make them think again, even though some landlord insurance policies will cover them for such periods. Over all though, many surveys carried out since the turn of the year show most landlords to be confident in the future, perhaps they will view these warnings as a gentle reminder that things rarely go to plan in the letting business.