Hampstead Rents Falling For The First Time in 4 Years

With Easter just gone and considering we are a just over a third of the way through 2017, I was talking to a local landlord the other day about what is happening to the level of rents that are being achieved in the Hampstead property market.

In terms of rents being achieved in Hampstead, it appears that for new rentals (ie when the tenant moves out and new tenant moves in) have seen some slight falls between 1- 5 % in the last 3 months for properties at the lower and middle end of the local market. For high specification properties priced at £1000 per week plus, the reduction in values has been much higher, in the order of 10-15% in some cases. The majority of these tenancies are largely taken up by the corporate sector and with all the significant political and economic events, the global corporations are simply not sending their people over anywhere close to the numbers of previous years. However, landlords with existing tenants, irrespective of age are not increasing their rents, as most landlords prefer to keep their existing tenant paying the same rent and have the peace of mind that their tenant remains (thus reducing the risk of a void period).

It must be remembered rents rose by a meagre 0.2% over 2008/9, due to an oversupply in the rental market in 2009.) A lot of the people who couldn’t sell their property in Hampstead in 2008/9 when the Credit Crunch hit decided to let their home out instead of selling at a loss. History is now repeating itself as the re emergence of the “Accidental Landlord” started in the second half of 2016 and the trend likely to continue throughout this year. Going back to the recession of a few years ago, the number of houses on the market for sale in Hampstead dropped by 55.5% between September 2009 and February 2010, a large proportion of which came on to the rental market instead.  However, looking at the longer term though, tenants have had it good  because since the turn of the Millennium, average wages have grown by 46%, but wages  outside London have only grown by 36% over this period.

(Source - Land Registry)

I told the landlord that there is a glut of new rental properties in Hampstead coming on the market, some of it previously listed for sale and the rest form long term tenancies that have ended after 4-5 years. In fact, according to the Office of National Statistics, there are 45 new rental properties coming to the market each month in Hampstead but the population of Hampstead is rising by 126 people a month. This may well be an early sign that rents will bounce back in the forthcoming months and values recover, all be it gradually. This is further compounded by the fact that tenants in existing rental properties appear to be in occupation for longer than average periods of time in the Hampstead area. “And what will happen with properties at the upper end of the market? “, he asked. I responded by saying that whilst realistic pricing is essential and that all property needs to be in Grade A condition to facilitate a quick rental, we may well see “ try before you buy” trend emerging, with families in particular,  taking up the larger apartments and houses to get a feel for the area before taking the plunge. This will go some way in helping the recovery of the upper end of the local rental market in light of current conditions.

Looking at the rents charged in Hampstead, historic evidence in the UK suggests private market rents have moved in line with general inflation. Government figures only go back as far as the year 2000, but looking at other countries with similar housing markets (America, Australia, Ireland and Holland) the fact is rents paid by tenants tend to rise in line or just ahead of inflation.

As short term wage growth in Hampstead has eased off recently, rising by only 1.3% in the last 12 months, taking average salaries in Hampstead to £36,904 per annum. The tax breaks announced by the former Chancellor in the Budget of 2015, I believe, even though rents have kept pace with inflation in the past, renting as an option has now become more affordable, and is increasingly seen as a lifestyle choice. With the political headwinds of late and the challenges the property market faced in 2016, renting for many provides stability and flexibility albeit for the short term, as a lot of big decisions are put on hold, therefore rental growth is most likely for the long term.  

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