Savvy property investors benefit from inflation-busting rental income
In this Landlord News Roundup, we look at the property investment news from the last month. Four items of news grabbed our attention in September. Combined, these point to a healthy environment for income seekers, as well as confirmation that the exodus from buy-to-let that so many ‘experts’ have been predicting for two years simply has not happened.
Rents rise faster than inflation as the shortage of homes bites
The August data from Your Move confirms our experience: rents are rising faster than inflation as more tenants chase fewer available properties.
Even a fall of 1.4% in London’s rental prices over the last 12 months wasn’t enough to take the gloss of a sterling rental performance, which saw average rents across England and Wales rose by 2.6% to £861 per month. In London, tenants pay an average of £1,271 per month on rent.
Rental prices in seven regions rose, with those in South West England rising fastest.
Martyn Alderton, National Lettings Director at Your Move, noted that demand for two- and three-bedroom properties are particularly high. Commenting on reasons for the strength in rental prices, he said, “It appears that there is less rental stock available this year compared to the same time last year. Whilst this could be the result of tenants staying in their rental properties longer or of landlords choosing to exit the market in light of recent legislative changes – it is also true that properties are letting more quickly than they were a year ago giving the impression of fewer properties available to rent.”
Like Ezytrac, Your Move has experienced an increase in enquiries for rental property, leading to shorter void periods.
Average yields are higher in the North than the South, with yields in the North East standing at 5%, the North West at 4.8%, and London only 3.2%. These yields have steadied in recent months, providing evidence that tenants and landlords have balanced expectations.
Month-on-month rental rises the highest for more than two years
The Landbay Rental Index confirms the Your Move data, with rental prices showing their fastest monthly rise for more than two years. Rental prices rose by an average of 0.13% in August – the biggest monthly rise since April 2016. In the East Midlands, rents increased by a whopping 0.32% – around 4% annualised.
The Landbay statistics show that the 12-month increase across the UK (excluding London) is a more subdued 1.6%, to an average of £767 excluding London renters. However, this is the largest increase on the Landbay Rental Index since May 2017.
Contrary to the Your Move data, Landbay figures show that rents in London have started to recover, at 0.44% higher than a year earlier.
Some London boroughs are showing strong rental price growth. In particular, these include:
- The City of London at 2.25%
- Bexley at 1.48%
- Southwark at 1.48%
- Lambeth at 1.44%
Commenting on the data, Landbay CEO John Goodall said, “The figures point to a possible start of sustained rental rises in the UK. Following a slowdown in rental growth, the changes are likely influenced by a number of regulatory and tax changes introduced over the past two years.
“As landlords begin to feel the pinch from these changes, combined with a reduction in the supply of new homes, the inevitable consequence is an upward pressure on prices.”
Supply of buy-to-let rises, despite fall in the number of landlords
News from Countrywide and Foundation Home Loans points to stronger-than-expected demand from buy-to-let investors. Remember the forecasts that buy-to-let investment was dead because of the government’s attack on the sector, both by legislative changes and tax changes? It just isn’t happening.
Jeff Knight, Marketing Director for Foundation Home Loans, said, “A year on from when the Prudential Regulation Authority’s (PRA) rules were introduced, it’s fair to say it hasn’t caused the mass exodus of landlords that some commentators widely expected.
“Naturally, there were concerns among landlords in the run-up to the latest PRA rules, and landlords even said they thought it would be harder to obtain finance in the new regime. However, as with many things, it is often the fear of change than the actual change itself which is the issue.”
Foundation’s latest research concludes that around one in five portfolio landlords intends to remain in buy-to-let indefinitely and that the average portfolio landlord expects to be invested for 15 years. Landlords with a single property expect to stay in buy-to-let for 10 years.
Fewer landlords, but more buy-to-let property available
I can remember some commentators forecasting that a quarter or more of buy-to-let properties would be sold because of the government’s tax and legislation changes. How wrong they have been!
Countrywide’s monthly letting index for August shows that, although the number of landlords has fallen by 154,000, the number of properties owned by buy-to-let investors has increased by 171,000 to 5.1 million since 2015. It also found that:
- Single property landlord numbers have declined, while portfolio landlord numbers have increased
- The percentage of investors owning only one property has fallen from 86% to 73% since 2010
- The number owning 10 properties or more has increased by 33% in the last 10 years
- The average number of properties held by a buy-to-let landlord is 1.44
What does all this really mean?
Rental price indices are notoriously difficult to read. Depending upon the data source and the size of the sample, figures can vary widely. However, the rental price data releases are starting to fall into a general consensus: rents are rising, and the pace of rental price increase is speeding up. We’ve witnessed a similar pattern among the properties under our management, as demand continues to outpace supply, despite stronger-than-expected demand from buy-to-let investors.
While some buy-to-let investors have clearly been spooked by the negative press surrounding Brexit, and this may have taken its toll on new investors to the market, portfolio landlords are finding ways to mitigate higher potential tax liabilities.
With the right strategies in place, more landlords have invested further, and are now reaping the rewards of patience as they see their rental incomes rising faster than inflation. Combined with stronger house prices than anticipated, the average buy-to-let investor is benefitting from rising rents, stabilised rental yields, and rising portfolio valuations.
Are you maximising your returns on property investment with effortless property management? Contact Ezytrac today on+44 0 1522 503 717, and discover why we’re one of the fastest-growing national investment property managers in the UK.
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