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UK becoming nation of tenants

The UK is becoming a nation of tenants who can’t afford increasing house prices.

A recent article in The Times reported that the number of households which are renting privately has risen by almost 48% in five years. Now, 1.2 million more households are renting than in 2006.

The rise in rental has been attributed to factors such as first-time buyers being turned away by lenders, and those who end up renting because they can’t secure a mortgage large enough to trade up.

In the 12 months to July 2012, UK house prices increased by 2%, down from 2.3% in the 12 months to June. Whilst house prices remain relatively stable, London prices continue to increase. The city also saw the largest increase in house prices at 5.7%, according to the House Price Index, July 2012.

The buy-to-let boom has contributed to a rise in private rented households, but now landlords face mortgage constraints just like other property buyers.

Landlords in London and surrounding areas are finding it hard to boost their property portfolio as cost per unit is so expensive. Cheaper prices in the North are attracting landlords, who can buy multiple units due to lower costs.

Whilst the situation is tightening in London and the South East, the North East is going against the national trend.

Current average rental yield is highest in the North East at 6.5% while tenants are still paying some of the lowest rents in the country. An average rent for a two bedroom property in the North East will take up about 25% of a tenant’s earnings; in London tenants must pay more than half their earnings for their monthly rent.

Ajay Jagota, managing director of North East-based KIS Lettings, comments: “The current rental market differs across the country at the moment.

“Landlords in the southern regions are facing high property costs which are limiting portfolio expansion due to the high deposits required by the banks. In contrast, the North is currently showing a higher average return on investment in terms of the rental yield.”

The recent Montague report seeks to address some of the issues the UK property market is currently facing. One recommendation is to encourage institutional investment in development of rental homes.

The report cited ‘Fizzy Living’, a subsidiary of Thames Valley Housing, which has built a 12-storey block of privately rented flats. The idea is to cater for ‘rentysomethings’; those who don’t qualify for social housing and who are unable to get a foot on the property ladder.

Fizzy Living intends to build a portfolio of developments with the expectation that large institutional investors will take on the developments and help meet the growing demand for rented accommodation.

Whilst the Montague report suggests institutional investing should provide stimulus for the economy and give people a chance to achieve their housing aspirations, Ajay is sceptical of how this will work out on a national level.

“Whilst these types of developments might be attractive in London, there is no guarantee this will be the case in regions like the North East.

“One of the current problems is the lack of capital appreciation in the region due to poor resale values, compared to such places as London.

“Institutional investment demand will be focussed on London and the South East, where repossession rates are lower and capital appreciation is higher which could deliver a greater return on investment.”

Ajay adds: “The North East lettings market remains stable at the moment with cheaper house prices and highest rental yields in the country. Despite this, we still need to think about the future and how investment opportunities can work in our favour.”

This was posted in Bdaily's Members' News section by Ajay Jagota .