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PRS Tenants Could Be Hit With Rent Increases Despite Falling Inflation

PRS Tenants Could Be Hit With Rent Increases Despite Falling Inflation

PRS Tenants Could Be Hit With Rent Increases
Despite Falling Inflation

The increase in demand for rental properties in the UK’s private rental sector (PRS) from would-be tenants could drive local rental prices through the roof in some parts of the country according to a new report published by the Association of Residential Letting Agents (ARLA).

According to data published in the latest ARLA monthly Private Rented Sector report 31% of letting agent members recorded an increase in the cost of monthly rent for rental properties in UK regions between January and February this year.

41% of letting agents in the South East of England reported landlords increasing rental prices for their properties. However, in Wales only 13% of letting agents reported landlords increasing rental asking prices.

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Smaller Buy-To-Let Properties Provide The Best Rental Yields

Smaller Buy-To-Let Properties Provide The Best Rental Yields

Smaller Buy-To-Let Properties Provide

 The Best Rental Yields

A one-bedroomed rental property in Wales may not sound like the most glamourous of property investments but it could deliver the best rental returns for landlords according to a new in-depth buy-to-let report by the UK’s largest lettings agency Countrywide.

A survey of more than 50,000 Private rented sector property owners has revealed Buy-to-let landlords are getting excellent rental yields in Wales, the North of England and the Midlands from 1 and 2 bedroom rental properties.

Landlords in many parts of Wales are achieving an average 6.7% rental yield (rent measured as a percentage of the property price), beating the North of England and the Midlands, which both average a 6.5% rental yield.

These figures are substantially higher than the average 4.6% rental yield observed in parts of Central London, regarded as the red hot heart of the UK’s property market.

One and two-bedroom rental properties have seen the greatest increase in average monthly rental prices in April 2013, with a 1.4% and 1.3% month-on-month increase to £679 (GBP) and £766 (GBP), respectively.

The detailed report into buy-to-let rental returns was conducted by Countrywide, who found that average monthly rental prices in England, Scotland and Wales have continued to increase for six consecutive months to reach an average of £842 (GBP) in April 2013.

But rent increases remain below the increased cost of living, with an annual average increase of just 0.8% measured against Consumer Price Index inflation of 2.8%.

However, average monthly rents have fallen within Central London, the South East, Wales and parts of Greater London.

The biggest rental price drop of 6.3% was seen in Central London, where average monthly PRS rental prices average £2,371 (GBP), more than double the £1,106 (GBP) recorded in parts of Greater London.

Rental returns by location

 

Rental returns by location - Source: Countrywide

Rental returns by location – Source: Countrywide

 

Nick Dunning, from Countrywide, said: “With renting for longer now the norm for many people as they save for a deposit to buy their first home, we are seeing more young families looking to rent cheaper accommodation, hence the increase in demand for smaller rental properties. While prime Central London has seen the greatest fall at 6.3%, this is simply reflecting the fact that in April stock levels in prime Central London were very high compared to last year which benefited from the Olympics. As a result this April, tenants tended to view multiple properties putting in lower offers, which some landlords accepted. However, as demand picks up into the summer, and supply and demand becomes more balanced, the same property could easily rent for more in August than in April.”

Returns by property type

 

Rental returns by property type - Source: Countrywide

Rental returns by property type – Source: Countrywide

 

Source: Countrywide

The number of properties purchased using Buy-To-Let mortgages increased by 84,000 during 2011, increasing the supply of suitable Private Rented Sector (PRS) housing according to the latest data released by the Council of Mortgage lenders (CML).

During the last quarter of 2011 a total of 34,800 Buy To Let mortgages, including 15,600 remortgages, were granted to property investors and landlords expanding their rental property portfolios. The total value of the mortgage loans topped £4 Billion (GBP).

The value of the fourth quarter mortgage loans matched the value achieved during the 3rd quarter in the same year with 34,300 loans worth £4 Billion (GBP).

Compared to the height of the UK mortgage market in 2007 when quarterly lending totalled 93,000 loans worth £12.7 Billion (GBP), the UK BTL market continues to operate at relatively subdued levels, but is clearly continuing to recover from the 2009 lowest point.

Buy-To-Let mortgages account for almost 13% of the total outstanding value of mortgages in the UK and BTL lending represented nearly 11% of total gross mortgage lending in the 4th quarter of 2011.

The arrears performance of Buy to let loans is better than the owner occupier market, but the property repossession rate is far higher.

Mortgage lenders are now making more strenuous efforts to help home-owners keep their homes wherever realistically possible, however, Buy-To-Let landlords must normally show greater fluidity over much shorter timescales in order to satisfy the mortgage lender.

UK landlords without Rent Guarantee insurance have been worried about keeping up with their mortgage payments if the tenant does not pay the rent and they continue to worry about how this will affect their, and in some cases, even the tenant’s standing with mortgage lenders.

Provided that the landlord has a bona fide Buy-To-Let mortgage and the tenancy is recognised by the lender, the tenant’s rights remain unchanged should the landlord be forced to default on mortgage payments.

CML Director General, Paul Smee said: “Buy to let lending continues to perform well and demand for rented property remains high, so the rationale for UK BTL remains strong and there is little reason to foresee any changes to this positive outlook for the UK BTL sector. The figures fail to suggest that Buy To Let is crowding out First Time Buyers (FTBs), more that it is performing a really important role within the UK housing market. The benefits of the availability of quality private rented housing should not be overlooked, especially as there are many households which need the flexibility and mobility that the Private Rented Sector (PRS) is well placed to provide”.

UK Private Rented Sector Survey by MyPropertyPowerTeam.co.uk

UK Buy To Let Landlords Want More Properties But Are Unable To Get Mortgage Finance

A new survey of Landlords in the Private Rented Sector (PRS) has discovered that only 20.2% ( 1 in 5 landlords) in the UK, were able to add fresh residential properties to their existing residential portfolio stock during 2011.

Property value growth expectations and the prospect of a regular income were the key drivers behind the property investment trend and only the lack of available mortgage finance, and/or financial know how, held back even more landlords from adding to their property portfolios.

Out of all the landlord insurance customers interviewed, 85% predicted that residential property values in the UK would remain the same for at least the next 12 months and private sector residential rents were expected to be considerably higher in 2013.

London led the way, after 87% of respondents said they believed that rents in the UK capital would continue to rise throughout 2012.

The data is from the PRS Landlord Survey carried out among subscribers by MyPropertyPowerTeam.co.uk during the last quarter (Q4) of 2011.

The data also showed that 59% of landlords have been investing for more than 5 years would hold onto their property until around the year 2025, however, the average holding period for UK PRS properties was around 15 years.

The appetite from property investors in the UK PRS for additional property assets is still extremely strong and the UK rental market is seeing demand outstrip supply as private tenants seek quality PRS accommodation. The current rental trend shows little sign of abating at present, despite all the UK Governments welfare reforms.

The UK Private Rented Sector is currently buoyed up by a growing population that is spending longer periods than ever living in rented homes, similar to the continental norm.

Landlords are making use of insurance products to protect their property assets and even Rent Guarantee insurance to ensure regular monthly rental income.

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