M A R K E T W A T C HInformation from Cartus on Relocation and International Assignment Trends and Practices.

A U G U S T 2 0 1 7

Current trends in the London rental market, the wider UK rental market and popular expatriate areas

U K P R O P E R T Y

This issue of UK Market Watch discusses current UK rental trends, with a focus on London.

L O N D O N R E N TA L M A R K E T

Standing on the River Thames and located in the south east, London is the UK’s most populous city. A global leader in terms of culture, commerce, education and entertainment, it is one of the most culturally diverse cities in the world, offering visitors and residents a wealth of restaurants, cafes, museums, galleries and other attractions.

There are also a number of different neighbourhoods and areas to live in. From apartments in the hub of the city for singles and couples, to townhouses and larger family homes in more leafy, residential areas. The city’s surrounding areas, collectively known as Greater London, are particularly popular amongst expatriate families. They include parts of Middlesex, Essex, Surrey, Kent and Hertfordshire. Larger properties with gardens are more readily available in these areas, which still provide a relatively short commute to the city.

R e n t a l Tre n d sLondon’s rental market is very fast moving and competitive, with the number of prospective tenants outnumbering available properties. In the last 12 months, we have experienced an increase in demand for rental accommodation across the Capital. As a result, vacancy rates – the length of time between rental property tenancies – are declining.1

The average rent in London is now at £1,524 per month and 67% higher than the rest of the UK. Year-on-year, the city’s monthly rental rates fell by 2.6% in June 2017, compared with June 2016. This is the third month in a row that rents have declined year-on-year.

When looking at individual boroughs of London, we can see where rental declines are being experienced most. Boroughs reporting falls in average rental values for new tenancies year-on-year include:

• Harringey & Islington (north): -11.2%

• Kingston upon Thames, Merton & Sutton (south west): -10%

• Hackney & Newham (east): -9.4%

• Westminster (central): -8.3%

• Camden & City of London (north): -7.8%2

Although the number of prospective tenants looking for rental accommodation remains high, the continuing fall in rental prices – albeit marginal in popular areas – would suggest that landlordsare being fairly conservative when setting their rates. This may be in response to the UK’s current economic uncertainty and concerns over affordability in the long-term.

A ff o rd a b i l i t y R e m a i n s I s s u eThe current trend of falling rents is encouraging for assignees entering London’s rental market, but they should be aware that the city remains one of the most expensive by world standards. Rents may be plateauing somewhat, but this follows years of an ever growing gap between a tenant’s income and their monthly rental payments.

As an indication of this growing gap, research suggests that as average wages grew by 10% between May 2011 and May 2017, rents across London rose by more than double (22%) during the same period. For England as a whole rents rose by 14.6%, demonstrating how London has outpaced the rest of the country in recent years.3

P ro p e r t y - t y p e sLarge furnished apartments (three and four bedrooms) can be low in availability across London, making them challenging to source. Likewise, small houses (one and two bedrooms) are low in availability and this includes most types of houses e.g. semi-detached and free standing. Gated compounds are also scarce across the country.

P A G E 1 O F 31 HomeLet June Rental Index, 20172 HomeLet June Rental Index, 20173 Chartered Institute of Housing, July 2017

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P o p u l a r N e i g h b o u r h o o d s There are a number of frequented expatriate neighbourhoods across London and its surrounding areas, with key ones listed below:

West Hampstead in North West London has a large U.S. expatriate contingent. Typical property-types on offer include Victorian terraced and detached houses, as well as mansion blocks (generous sized, high-end apartments). The average rental rates for properties in West Hampstead, per calendar month, are outlined below:

B e d ro o m R e n t a l R a t e

1 £1,500

2 £2,100

3 £3,100

4 £4,200

*CORRECT AT TIME OF PUBLICATION

The borough of Camden in North London is popular amongst young professionals, both expatriates and locals. Assignees may typically find Victorian terraced houses and period conversions available to rent. The average rental rates for properties in Camden, per calendar month, are outlined below:

B e d ro o m R e n t a l R a t e

1 £1,800

2 £1,900

3 £2,985

4 £3,850

*CORRECT AT TIME OF PUBLICATION

Cobham in Greater London is a village in the county of Surrey. Only 17 miles south west of London, it is a popular area amongst expatriates and is a quiet, affluent area. There is also a good selection of property-types available including, Victorian cottages and houses, Regency houses, 1930s semi-detached houses and new builds (houses and apartments). The average rental rates for properties in Cobham, per calendar month, are outlined below:

B e d ro o m R e n t a l R a t e

1 £1,250

2 £1,450

3 £1,950

4 £3,670

*CORRECT AT TIME OF PUBLICATION

U K R E N TA L M A R K E TAverage monthly rental rates for the UK currently stand at £908. When London is excluded from this average, it falls to £757 per month.4 Monthly rents fell by 0.3% in June this year compared to 12 months ago, with rates falling in five of the UK’s 12 regions. This is the second month in a row in which rental values declined. Rental supply across the UK also appears to be easing somewhat, having risen by 11% between May 2016 and May 2017. Available rental stock was highest in Scotland and lowest in London.5

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M A R K E T W A T C HInformation from Cartus on Relocation and International Assignment Trends and Practices.

A U G U S T 2 0 1 7

Source: HomeLet June Rental Index, 2017

B re x i t I m p a c tFollowing Britain’s referendum and vote to leave the European Union (EU) on 23 June 2016, there has been uncertainty about the impact that ‘Brexit’ may have on the rental market. Many experts suggest that instead of an immediate trend, a more long-term impact will be felt in the years following the UK leaving the EU. This is expected to be largely due to the dip in the number of EU nationals entering the private rental sector, which will influence demand levels and rental prices. Of course, EU migration will impact some parts of the country, like London and the South East, far more than others, but we are yet to see the extent to which this will impact local markets.

L E G I S L AT I O N : T E N A N T ’ S F E E B I L LIn the near-term, a new Tenants’ Fee Bill was announced by the UK Government during the Queen’s Speech on 21 June 2017, which bans letting agents from charging tenants in England a fee, as a condition of their tenancy. Such charges are typically positioned by letting agents as fees to cover administrative and referencing costs. In recent years however, tenants’ fees have not been deemed reasonable, with some agents overcharging.

It is estimated that the average UK tenants’ fee is £223, according to government figures, which impacts an estimated 4.3 million households each year. Although the legislation is yet to be finalised, once the Tenants’ Fee Bill becomes law, the UK landlords will have to pay the fees themselves.

The Queen’s Speech traditionally takes place after a new Government is formed and outlines what the Government’s priorities are for the coming year, so it is expected that the Bill will become law in the next 12 months.

R e c o v e r i n g F e e sThe proposed legislation also states that there will be measures to allow tenants in England to recover unlawfully charged fees from letting agents. Although it is not yet clear whether this will apply to fees levied before the ban or those illegally charged once the ban is in place.

P A G E 2 O F 3C A R T U S | M A R K E T W A T C H : U K / A U G U S T 2 0 1 7 |4 HomeLet June Rental Index, 20175 ARLA Private Rented Sector Report, May 2017

Jun-

15

Aug

-15

Oct

-15

Dec

-15

Feb

-16

Ap

r-16

Jun-

16

Aug

-16

Oct

-16

Dec

-16

Feb

-17

Ap

r-17

Jun-

17

Time (month)

Ave

rag

e re

ntal

val

ue (£

)

960

920

880

840

800

£869

£910£908

U K P R O P E R T Y

M A R K E T W A T C HInformation from Cartus on Relocation and International Assignment Trends and Practices.

A U G U S T 2 0 1 7

Sources: : HM Revenue & Customs, Halifax House Price Index Survey, Nationwide Building Society House Price Index Survey, Royal Institution of Chartered Surveyors, Hometrack, HomeLet, Bank of England, Association of Residential Letting Agents (ARLA).

©2017 Cartus Limited. All Rights Reserved.

The information in this publication is provided in good faith based on information currently available and is therefore subject to change. However it is not intended to provide specific advice or guidance or take the place of either written law or regulations. Cartus accepts no liability for the accuracy, completeness or usefulness of the data and information contained herein or for any loss or damage arising in contract, tort or otherwise in reliance of the data contained or omitted from this publication or from any action or decision taken as a result.

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I m p a c t o n R e l o c a t i o n P ro g r a m m e sThis new legislation may positively impact companies with UK relocation programmes, as they will no longer have to pay tenants’ fees for assignees securing rental accommodation. However, as landlords will now be expected to pay the fees themselves, it has been suggested that they will find other ways to offset the cost onto tenants, e.g. increasing rents or management charges.

Assignees who are letting their property in England whilst on assignment will also have to pay the associated fees. Should companies have a policy that covers these fees, then this new Bill will add additional costs to relocation budgets.

R E S I D E N T I A L S A L E SIn the UK residential sales market, there was a marginal 1.1% increase in UK property prices in June, with the average house now valued at £211,301. This follows price falls recorded for each of the previous three months.6 Transactions also fell for the fourth month in a row, reflecting a cautious stance from buyers and a depletion in available housing stock. Indeed, new instructions for home sales fell for the fifteenth consecutive month in May 2017.7 Although not yet clear, the slow market may be due to the ongoing uncertainty around the UK economy.

There has been uncertainty about the impact that Brexit will have on the economy and property market and the recent General Election, which failed to produce a ruling majority party, has added to this uncertainty. Indeed, the Royal Institution of Chartered Surveyors reports that 44% of its members identified ‘political uncertainty’ as the biggest factor contributing to the lack of buyers and sellers. An additional 27% of surveyors indicated that the reason was Brexit.8

R e g i o n a l D i f f e re n c e sThe gap between the strongest (East Anglia) and weakest (the North) performing regions, in terms of house price growth, was the smallest on record in the second quarter of 2017. This would appear to suggest that the rapid price growth experienced in Southern England is moderating somewhat, with London reporting the slowest pace of growth since 2012.

Indeed, for the first time in eight years, price growth in Northern England (West Midlands, East Midlands, Yorkshire & Humberside, North West and North) exceeded the growth reported in Southern England (South West, Outer South East, Outer Metropolitan, London and East Anglia).

Despite this, Nationwide indicates that the ‘price gap between regions remains extremely wide’. This is demonstrated when looking at house prices today, compared to their 2007 peak. For example, London house prices are now 55% above levels seen in 2007, whilst property values in the North, Yorkshire & Humberside and the North West remain lower than their 2007 peaks.9 Assignees should be aware of the regional differences in property prices when conducting home search trips, especially those relocating within the UK.

GOING FORWARDPolitical and economic uncertainty may have an impact on the future UK housing market, but it will take time for the extent of this to become clear. For the short term, much will depend on how the uncertainty may influence the sentiment of home buyers, sellers and renters. In the long term, how the UK economy will affect household finances, inflation rates and the mortgage market will be key. A major part of this uncertainty is the ‘Brexit effect’. After the UK officially leaves the European Union in March 2019, the UK Government has stated that it expects the UK to go through a transitional period of around three years. So although the UK has not yet experienced particularly strong housing trends as a direct consequence of Brexit, this may change in the coming months and years as the transition takes place.

W H AT W E D OAs an important part of our Destination Services support, Cartus establishes and maintains relationships with real estate agents in London and other regions of the UK. These long term relationships are key to ensure that assignees have access to all available properties. To help meet requirements, we act as an intermediary between the real estate agent and the prospective tenant. We recommend that assignees keep in regular contact with their Cartus representative throughout their period of relocation.

6 Nationwide House Price Index, June 2017 7 Royal Institution of Chartered Surveyors, July 2017 8 Royal Institution of Chartered Surveyors, July 2017 9 Nationwide House Price Index, June 2017