Member Article

Tenants feel first rent rises since September

Tenants face the first rises in market rents since the autumn, as the private rented sector braces for anti-landlord policies, according to the latest Buy-to-Let Index from Your Move and Reeds Rains.

Average rents are now rising on a monthly basis for the first time since September 2015, up 0.1% between January and February.

Rents across England & Wales now stand at £791 per month as of February, 3.3% higher compared to this point last year – or an extra £25 per month for the average tenant.

Adrian Gill, director of lettings agents Your Move and Reeds Rains, comments: “Spring is here for the rental market. Rents are rising and demand is growing. In a warming market, tenants are beginning to feel the heat when signing new tenancies.

“But this delicate ecosystem of soaring demand from tenants and steady investment from landlords is under threat. Rent rises could now accelerate further, and gentle spring warmth could start to feel less comfortable. If government attacks on landlords bite – having worsened again in this week’s Budget – the flow of investment from landlords could wilt.

“Landlords are increasingly deliberate in their actions and savvy in their business decisions. But all landlords investing steadily in new property to let are the heroes of the buy-to-let industry, not the villains. Thanks to the business acumen and persistence of landlords, Britain’s private rented sector has become home to millions of households and the only real backstop against the weakness of other tenures.

“All landlords, regardless of the number of properties they own, want to provide a quality service as part of earning a reliable return on their investment. For those with the right advice, this is part of operating a successful business model. Avoiding void periods and ensuring a good relationship with reliable tenants is essential. So it is hard to understand the logic behind restricting the flow of new investment, and the competition between existing landlords.

“Additional taxes on the purchase of new buy-to-let properties will not support the stated aims of these policies – namely to improve home ownership. By attacking buy-to-let, the government will only serve to push up market rents more quickly, stymieing the efforts of many tenants to raise a deposit to buy a home – while also boosting returns for existing landlords with the best advice to navigate new complications.”

Gross annual returns push to 17 month high

Rental yields are proving resistant to rising purchase prices. The gross yield on a typical rental property in England and Wales (before taking into account factors such as void periods) is steady at 4.8% in February, the same as in January 2016. On an annual basis, this is fractionally lower than the 5.0% gross yield seen a year ago in February 2015.

Taking into account both rental income and capital growth, the average landlord in England and Wales has seen total returns of 12.7% over the twelve months to February. This is up from 11.7% in the twelve months to January – and now also represents a seventeen-month record, since total returns previously reached 12.7% in the year to September 2014.

In absolute terms this means that the average landlord in England and Wales has seen a return of £23,227 over the last twelve months, before any deductions such as property maintenance and mortgage payments. Of this, the average capital gain contributed £14,767 while rental income made up £8,460 over the twelve months to February.

Adrian Gill continues: “Rising property prices and rising rents are two sides of the same coin. There is not enough supply of housing across the UK to match soaring demand. This is powering a sellers’ purchase market and a landlords’ rental market. Housing costs are rising, and housing wealth is rising – two very different perspectives on the same issue.

“Faced with this dilemma, investment in property is a rational response, and has been proving extremely lucrative for landlords and some home-owners alike. Building more new homes would be an even better response, and where possible is even more profitable. But it is government inaction preventing more homes being built to fill the gap – just as it is a government decision to attack those willing to navigate the risk and complexity of property investment.

“Until this country builds new homes at the rate needed to match our rising population, property investment and buy-to-let activity will continue to be especially profitable. Even if that ever happens, it could take decades of sufficient home building to make up for the decades of undersupply. The only caveat is that property investment decisions are becoming more complicated thanks to the plethora of additional regulations and tax changes. These decisions will be harder to make, and the buy-to-let industry will demand a more professional approach to the business of being a landlord. But for those who already own properties, or have the capital to invest, there are opportunities to be found.”

Click here to read the full Your Move Buy to Let report.

This was posted in Bdaily's Members' News section by Property Editor .