When Alexandra Rodriguez asked her landlord to fix the fire alarm in her rented flat in south London, she didn’t expect his response to be an eviction notice. Instead, he sent her a formal request to move out of the apartment within two months, then re-advertised it for nearly 40% more rent.
“They advertised the property on Rightmove as £1,800 a month . . . that’s why they kicked us out,” said the 37-year-old science technician, adding she was still “emotionally and financially” Recovering from being kicked out of your home.
Her experience echoes that of many Londoners who have been hit by soaring rents and even evicted as landlords pass on pressure from rising interest rates. British capital, which has increasingly relied on the private rental sector over the past two decades, is particularly vulnerable to rising interest rates because of the prevalence of interest-only buy-to-let mortgages, which have helped create a legion of middle-class landlords.
Rents in London are at their highest level on record, well above the rest of the UK and many European capitals. Rents in London have risen by a fifth between March 2020 and May 2023, with the median cost of a studio in Greater London hitting 100,000 per month, according to real estate agent Savills. £1,275.
Experts say the surge in rental demand is being driven by record immigration numbers in the UK and an influx of students into private rental accommodation due to a shortage of student accommodation.
Richard Donnell, head of research at Zoopla, said higher mortgage rates and the end of the government’s scheme to support first-home buyers were forcing more would-be buyers to start renting.
“You need a £100,000 income and a £140,000 deposit to buy a house in London, which means a lot of people have to rent,” Donnell said. UK home sales are on track for their slowest in more than a decade, according to Zoopla one year.
Soaring demand means tenants are fiercely competing for housing. Neil Short, head of London lettings at real estate agency JLL, said they were engaging in bidding wars and offering to pay months’ rent in advance.
“I’ve been in the rental business for the better part of 20 years and I’ve never seen a situation like this until recently where we had to take a property off the market because 20 people showed it in half an hour,” he said. Short said. “We were inundated with inquiries. We had to physically stop (them).”
Adding to the pressure is the risk of shrinking in London’s stock of rental properties – already insufficient to meet demand – just beginning to recover from five-year lows in 2022. Around 4.8 million private landlords provide accommodation for one in five UK households, Savills said. Of these, more than 1 million are located in Greater London, housing about 30% of local households.
After the introduction of buy-to-let mortgages in the 2000s, the private rental sector in the UK boomed. London’s high reliance on interest-only loans makes it vulnerable to rising borrowing costs, putting landlords’ business models under pressure.
The average two-year buy-to-let residential mortgage rate in the UK rose from 4.5% in August 2022 to 6.6% by the end of August 2023, according to Moneyfacts. This hurts landlords in and around London. Neil France, an Essex landlord with four buy-to-let properties, said the increase in monthly payments had been “shocking” and had forced him to raise rents to avoid losses. “We have to go to all the homes, sit down with all the tenants and explain the situation to them,” he said.
Regulatory changes have made private rental investments less attractive, hitting borrowers. The UK government scrapped tax breaks for buy-to-let mortgage interest in 2016, and landlords are likely to face new energy efficiency requirements and tighter regulation of the rental market in coming years.
“The impact (of the 2016 tax overhaul) is only really starting to be felt today, and the 6% to 7% tax rate can’t be offset as spending,” said David Fell, an analyst at realtor Hamptons.
Lenders repossessed 440 buy-to-let properties in the UK in Q2 2023, up 7% on the previous quarter, and a further 1,870 landlords defaulted on payments, totaling more than 10% of their outstanding loans According to the Financial Times “Report.
“I can’t believe that anyone would choose to buy to rent now,” Frans said. “I would question their sanity.”
Outstanding buy-to-let mortgages have fallen this year as landlords pay off debt or sell properties to avoid the hit of rising interest rates. In London, high mortgage costs make returns on such properties lower than elsewhere. “Unfortunately, we’re going to see a lot of older landlords selling,” Donnell said.
Hampton estimates that between one-third and one-half of the homes sold by landlords are still on the private rental market. Experts warn that the sell-off could further squeeze supply. This will put pressure on London’s most vulnerable tenants, many of whom rely on private rentals because they lack access to social housing.
Roughly a quarter of renters in the UK private rental sector receive government housing benefits – the figure in London is 29%, according to an analysis of government data by Zoopla and homelessness charity Crisis.
“We haven’t built enough social housing in the last 20 years, so the growth of the private sector has absorbed the unmet need,” says Zoopla’s Donnell. “Once the rental market stops growing, there are a lot of problems that come to the fore.”
In London, the proportion of households in social housing (housing provided by councils and not-for-profit housing associations with rent linked to income) varies across boroughs, from less than 10% in Redbridge to almost 40% in Barking and Barking . Dagenham.
Campaign group Generation Rent said local housing subsidies had failed to keep pace with rising rents, so welfare recipients could not compete in the private rental market.
They also run the risk of having to find a new home, as landlords in England can evict tenants within six months of a lease with two months’ warning and no explanation.
Such evictions will be capped by a tenant reform bill being considered in parliament, but progress on stricter rules has been slow since a 2019 promise. Generation Rent said lax regulation made low-income households particularly vulnerable.
Rents are rising across London, but suburbs such as Harrow, Sutton and Havering are seeing the fastest growth. “One of the big problems in London is that renters are being pushed to the outer reaches of London in search of affordability,” Donnell said.
Hairstylist Solomon, 29, spent weeks frantically searching for a room after his landlord told him to leave his Camberwell apartment. After numerous bids were defeated, he decided to cut his losses and move to Basingstoke, Hampshire.
“Either I pay a lot of money to go to London – I don’t feel comfortable in a place where the humidity and mold affect my mental health – or I risk moving out of London and solving the commuting problem,” he said.
Solomon, whose commute to Peckham, south London, now takes more than an hour, says getting away from the capital is the only way he can live alone in a well-maintained, functional apartment.
“My work and career are in London, all my friends are there, but what I need at this stage of my life is home and safety,” he said. “London can’t afford that for me anymore.”
Data Visualization by Chris Campbell and Martin Stabe
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Here is the latest installment in the European rental crisis series:
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