Introducing Rental Caps – Good or bad for business?

In late 2014, the Labour Party announced that one of their main focuses if they were elected into power would be to introduce rental caps. This means landlords and estate agents will only be able to charge up to a certain amount each week. The goal is to make rented accommodation more affordable. However, some critics have claimed the changes could actually increase the rental cost. Below you’ll discover the pros and cons of the proposed cap and how it would affect you.

The benefits of a rent cap

If a cap was introduced on the amount of rent that could be charged, it would help give tenants better financial security. Knowing exactly how much will be coming out every month without worrying about rental increases really does provide a peace of mind.

Statistics show that since 2010, rental rates have increased by 13%. This adds up to a total of an additional £1,020 each year. There are millions of people renting in the UK and many struggle to pay their current rental rate. If they were to increase further, it would leave many people unable to afford to rent a home. So the cap would help to ensure everyone can afford to rent.

The cap will likely cause people to think twice before buying a property to let. If fewer people are buying to let, it increases the opportunities for first time buyers. Another benefit of the proposed cap is the fact that tenants might also be able to afford a larger property. Family homes wouldn’t be as expensive for example.

The labour party feel the UK could learn from other countries such as Germany, which has started to introduce caps in inner city areas. It is restricting landlords from increasing their rental income to no more than 10% of the average rental cost of similar houses. If Britain followed Germany’s example, it would mean landlords wouldn’t be able to suddenly increase their rates by a currently average 30%-40%. This would make it much more affordable for those on an average salary.

Landlords would also actually benefit too. More tenants would be able to afford the property which means finding tenants won’t be a problem. Sometimes properties are left vacant for months before new tenants move in. If the property is more affordable, there won’t be a worry about losing too much money when it’s empty.

The cons of a rent cap

The main concern critics have over the rent cap is the fact it could end up having the opposite effect. If landlords can only charge a certain amount for their property, the buy to let market could suffer significantly. This could lead to fewer properties being available to rent.

There’s also the fact that landlords are able to set their own rental cost at the start of the tenancy, but then have to follow the cap guidelines. There are fears this could cause landlords to charge more initially to avoid missing out on profits. In this situation, tenants won’t really be saving anything as they will be paying more than they would have done if the caps weren’t in place.

Even if the cap does reduce the price of rent, that still won’t solve the housing crisis completely. It would make it more affordable for middle class renters, but those on a low income would likely still struggle to find somewhere affordable.

At first glance the caps seem like a great idea. However if you dig a little deeper you soon realise they won’t make a significant difference. More thought needs to be put into benefitting lower salary households.

Content contributed by Olly Sampson who has been both a tenant and a landlord in his time so appreciates both sides to this argument. He owns Bee Moved Removals in Brighton a domestic and commercial removals company.

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Caroline Engstrom

Caroline Engstrom has a passion to help landlords and tenants by providing helpful tips and advice regarding real estates.

One thought on “Introducing Rental Caps – Good or bad for business?

  • March 30, 2015 at 1:09 pm
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    There is hardly a negative impact from the rent cap. All the negativity would come from people who are likely to try and abuse the law to it’s maximum yielding potential.
    Yes, they are going to go and make it hard on other to deal with renting accommodation, but it’s probably safe to say that these are the same people that are now at the core of the problem with private renting.
    People who will try to abuse it are the same people who are abusing the regulations right now and taking skin off the back of tenants.
    I think rent caps can only help to stabilise the private renting sector and bring balance to a very unbalanced industry.

    Reply

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