Monday 16 May 2016

Countrywide Lettings Index April 2016

Landlords target cheaper properties in response to new 3% stamp duty charge

  • Average price paid by investors in April fell by 8.3% month on month, from £194,000 to £178,000
  • London saw the biggest change in behaviour with Landlords buying homes costing 16.4% less than the previous month
  • The number of homes sold to first time buyers increased by 19% between April 2015 and April 2016, while the number of homes bought by Landlords halved.
  • Average UK rental growth continued to slow. April’s 2.0% growth was less than half April 2015’s 4.7%.

The latest Countrywide Lettings Index shows how landlords are changing their purchasing habits in response to the new 3% stamp duty charge for investors introduced in April 2016.  Landlords are targeting cheaper homes to buy, to try and offset the 3% increase in purchasing costs.  The average house price paid by landlords fell 8.3% month-on-month in April.  On average investors paid £178,000 for a home in April 2016, compared to £194,000 last month and £188,000 in April 2015.

London saw the biggest fall in average price paid, falling from £436,000 in March to £365,000 in April. While overall house prices in London rose 13.9% over the last year, the Capital’s landlords paid an average of 8.2% less than they did in April 2015.  Generally lower priced markets saw a less marked response from Landlords with average prices paid by investors rising month on month in the North East and Yorkshire. 

April also saw fewer landlords purchasing homes, after a spike in activity in the first three months of the year.  Landlords rushed to complete on their purchases before 1st April to avoid a bigger stamp duty bill with 61% more landlords buying in the first quarter of 2016 compared to the first quarter of 2015. Many sales which would otherwise have normally completed in April were pulled forward into March. Around half the number of landlords bought in April 2016 compared to April 2015.  The number of sales to first time buyers rose by 19% over the same period.

Average rents increased 2.0% over the last year, leaving the average monthly UK rent at £932. Rental growth is now half the rate it was in 2015.  Affordability constraints and the increase in the number of homes coming onto the rental market continues to slow rental growth.

Commenting, Johnny Morris, Research Director at Countrywide, said:

“April’s fall off in investor activity seems to be the consequence of Landlords bringing forward purchases to beat the stamp duty deadline.  Rather than being dissuaded by the new 3% charge it seems that landlords are already adjusting their behaviour.  In response to the extra purchasing costs many are choosing to buy cheaper homes that offer a higher yield and of course a lower stamp duty bill.

“There’s early signs that first time buyer numbers are increasing in as investor activity has declined.  But it’s too early to tell whether this is simply the after effects of the stamp duty rush or the start of a longer term trend.”

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About the Countrywide Lettings Index and new methodology

The Countrywide Lettings Index has been running since 2012 and we continually seek to improve its accuracy.  From June 2017 the methodology was changed to reduce the impact of seasonality and volatility in the rental market. 

While the index remains a mix adjusted series, rent and rental growth figures for each month are now based on a three month rolling average rather than lets agreed in the last month.  The most expensive decile of homes let has been excluded to reduce volatility and the mix has been updated to include the most recently published government stock statistics.

The Countrywide Lettings Index uses data from Great Britain's largest letting agent to track changes to the cost of renting.  The index is based on the 90,000 homes let and managed by Countrywide in each year, adjusting for their location and type.  It is based on achieved rather than advertised rents and the published monthly rental figures are an average of the new lets and renewals of tenancies over a rolling three month period.