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Written by rosalind renshaw

The boom in rental growth is likely to be at an end, think-tank Capital Economics has warned.

Property economist Paul Diggle says the boom is on its last legs and warned that if its unemployment forecasts are correct, more tenants will be struggling to pay rents.

Eviction specialist Landlord Action disagreed that rents would go down, but said its instructions relating to rent arrears increased by 12% over the last year, and now comprise 80% of its cases.

It also warned that in the last 12 months, cases directly related to Local Housing Allowance (LHA) increased by 16%. 

At Capital Economics, Diggle said: “Although tenant demand is unlikely to wane, above-average growth in rents in the next two years would seem unlikely.

“A recent report by Shelter indicated that two million households have resorted to paying their rent or mortgage with a credit card in the past six months, a situation that is clearly unsustainable.

“Similarly, the Q4 survey from the Association of Residential Letting Agents reported a rise in rental payment problems, and there are good reasons to think that these problems will intensify in the next few years.”

The economist said that reforms to LHA which start in April and which will cap benefits paid to tenants in private rented accommodation, will put further downward pressure on rental growth.

Diggle said: “Many of the reasons why more tenants will have difficulty paying their rent will also lead to borrowers facing problems meeting mortgage payments.

“But while borrowers might be able to come to arrangements with their lenders to extend the term of their mortgage or take a payment holiday, tenants have to find relief by negotiating reduced rents.

“The upshot is that, on average, landlords will struggle to see more than 2% year-on-year growth in rents this year and next.”

Paul Shamplina of Landlord Action said that some landlords would not be able to afford to accept reduced rents from LHA tenants. He did not think rent levels would sink but warned of increasing arrears.

“Landlords facing repossession action due to mortgage arrears caused by non-payment of rent by tenants is likely to continue,” he said. “We expect interest rates to remain low but advise landlords to be cautious, especially if they have high gearing on their property portfolios.”