The Guardian reports that London rents have fallen year on year for the first time in 6 years. See the article here. What does this mean in real terms? If you negotiated a tenancy today, you would agree to pay less rent than you would have if you negotiated a tenancy a year ago.
Why is this happening? Truth is nobody really knows but as always, rent is a supply and demand game so either there is less demand or there is more supply or the demand is the same and the supply is more, etc, etc.
Let’s look at what has happened since February last year (the benchmark date used in article).
- Increase in stamp duty in April last year meant lot of people bought houses then to tried to rent them out (read: supply increased).
- Brexit happened. People are thinking twice about moving to the UK and to London. Young renters are consolidating and sharing one home to save money. Practically: imagine 4 people renting a house each. That means 4 houses have been taken out of the housing supply. Now, those renters have decided to move in together to save money. This means that only 1 house is rented and the other 3 go back into the housing supply. These 3 houses are now sitting vacant. Supply exceeds demand and to attract the 4 people back into renting a house each, the rents have to come down.
What is interesting in London though is that a lot of houses and flats are owned by huge landowners who simply don’t care if their properties are vacant. They will rather leave a property vacant than agree to lower rent (regardless of whether this is the market rate). I know, I have experienced this. It is different (but only slightly) when you are dealing with a private landlord who has only one property and who cannot afford to have it vacant. They are more likely to be sensitive to market realities. Big landlords are not. So good luck renegotiating your annual lease if your landlord is one of the big ones!
Some other advice: if you are renegotiating, make sure you have another flat/house that you can move into if negotiations go badly. The reason is that your landlord knows it is a difficult and expensive process to move so he will most likely use that to try and force an upward rent review regardless of what the market is saying. If you have a cheaper flat/house you can move to (cheap enough to justify the complex and expensive process that is moving) then you actually have some power. If you don’t, get ready to sign for a rent increase even in a falling rent market.
So basically when it comes to renegotiation time, you should really approach a separate letting agent, look at what they have and start negotiations. Get it to the point where you are about to sign. This should be about the same time you are about to sign your renewal. Now play hardball with your current landlord. Explain the market realities, point out the problems with the current flat etc, etc. If he is not amenable (basically, he wants to screw you) then delay, delay and delay until you are almost at the end of the lease period. Now tell him you are moving out unless he agrees to market rate. If he says no, you sign for the other flat and move. He won’t be able to fill the flat for at least a month so will lose a month’s rent. As he realises you are not bluffing, he may well come round (win for you). If he doesn’t you are in your new flat for cheaper. All good. The one caveat is to check the contract to make sure the landlord cannot retain your deposit in these circumstances.