Continuing “insatiable” tenant demand for residential lettings has resulted in continuing and steady increases in rents, that’s according to agents, Sequence, which includes Barnard Marcus, William H Brown and Fox & Sons
Although rising house prices continue to raise concerns about a UK property bubble, hence the planned caps on mortgages announced Thursday by the Bank of England, we are also seeing a growing number of people unable to afford a home, despite government-backed lending schemes.
The agent’s latest research shows that demand from UK tenants has risen 14 per cent annually, whereas the supply of rental homes is actually not growing or even decreasing, by as much as 7 per cent across the same period in some parts.
London, in particular is showing no signs of the rental market slowing down, with new agreed tenancies up 34 per cent annually, while supply has only increased by around 3 per cent.
According to Paragon Mortgages, from the results of a recent survey of more than 1,000 landlords, many (around 25%) are planning to add to their Buy-to-Let portfolios and the most common factors they look for when investing were:
- The landlord’s own knowledge of the area
- Their assessment of the strength of tenant demand in the local area
- The prospect of their capital growing throughout the investment
- Proximity to local transport connections
- Future development plans in the area
- An investment near their own home
The research seems to show that generally landlords view Buy-to-Let as a business, they are still optimistic and investing and managing their portfolios only after careful consideration, and they have a preference for investing in their own communities.
Average rental yield holds steady:
The average gross rental yield being achieved by Buy-to-Let landlords has remained steady throughout last year and continues according to market researchers, BDRC Continental.
The difference in gross yields across regions is not that great (5.6 to 6.4%) with the overall UK average around 6%.
HMOs, as would be expected, show the highest yields, at around 6.8%, followed by ﬂats/apartments at around 6.7%.
All the signs are that these returns will remain steady throughout 2014.
Average yield (gross) by:
According to Paragon, Buy-to-Let investment peaked during Q3, 2013 with landlords reporting an average of 14.7 properties in their portfolios – this the highest number recorded since 2002.
Despite a 10% increase in the private rented sector (PRS) over the last 10 years lending is only around 45% of the peak reached in 2007, though steady progress continues to be made.
Judging by the increase in landlords’ optimism in the first half of 2014, and the perception that buy-to-let finance is still reasonably available, net investment is expected to increase by around 5.6% over the next 12 months.
In comparison to previous years, 2013, and so far for 2014, these results show good progress in the buy-to-let market, though Paragon warns it’s important to remain cautious.
There are some obvious signs of headwinds on the horizon, not least of which are prospects of increased interest rates, but also increasing regulation, especially if there is a change of government. Labour is committed to changing the existing legal regime on tenancies and bringing in some form of rent control.
There have already been some major statutory changes in Scotland and Wales, though so far the Coalition Government has resisted the temptation to increase the regulatory burden further on the buy-to-let landlord.