Tell me something I don't know

For months now I have been banging on about how there is a shortage of suitable properties coming on to the market, and that how rents are beginning to climb.  I saw this today and hate to say I told you so .........but I told you so.

The average rent in the UK rose by 1% in June. Rents have risen for five successive months, and are 3.2% higher than a year ago – the equivalent of £23 more per month than a year ago. The average rent is now £673 per month, the highest level since November 2008.  

David Brown, Commercial Director of LSL Property Services plc, comments:

“Rents have continued their upwards trajectory, and are just a few pounds away from their peak levels in 2008. The seasonal pick-up was exaggerated by the squeeze in the supply of rental accommodation.

"Although landlords weren't clobbered as badly as feared, it is possible that some left the market in the run-up to the budget, and concerns over the new capital gains tax rate dampened the number of new investors entering the market in June.

"But the restricted availability of buy-to-let mortgage finance has been the underlying factor holding back investment in the sector and the number of new rental properties hitting the market.”

London continued to lead the surge in June, with rents in London rising by 1.9% to £942. Landlords in the north also had reason for cheer as rents rose in both the north west and north east - by 1.4% and 1.3% respectively.  However the west midlands bucked the national trend, recording a drop of 1.7%.

Brown continues:

“London rents have climbed for five consecutive months, and there is no sign of a slowdown. There is an acute lack of affordable housing in London, and would-be buyers cannot afford the rising house prices – or get big enough mortgages. The increasing reliance on rental accommodation in the capital, combined with the constraints in its supply is pushing up rents faster than anywhere else in the UK.”

As rents continued to increase, and house prices dropped off in June, yields on buy-to-let properties snicked up to 4.9%. The house price for the average rental property fell by 0.25% compared to May, with the rate of annual increase slowing to 8% in the past 12 months.

The total return from investing in buy-to-let over the last twelve months fell slightly to 12.3% in June as house prices fell slightly. The average landlord would have made £18,983 in the past year – a combination of £7,164 in rent and £11,819 in capital gains. 

With the recent house price decreases, a landlord investing today can expect to make an annual return of 3.4% over the next twelve months.  This is equivalent to £5,670 on a typical UK property.

David Brown comments:

“The recent changes in property values demonstrate just how vital it is for potential landlords to prioritise rents and tenant demand when investing. With house prices unlikely to climb significantly in the short-term, rental income will be driving landlords' returns – as well as paying their mortgages.”

Tenant arrears fell in June. £234m of all rent in the UK was unpaid – a decrease of £10m from May. This represents 10.1% of all rent in the UK – down from 10.7% in May.

David Brown continues:

“Increasing the Capital Gains Tax rate to 28% was an unpopular measure amongst landlords and second home owners. But it could have been a lot worse, with a 40% rate on the cards. And the blow has been softened somewhat by the improving market conditions for landlords.

"Yields are on the rise, and tenant demand is strong enough to push up rents. With tenant finances in good order, an investment in property will still bring healthy annual returns.” 

The fact of the matter is that we are getting many more tenant enquiries than we have properties available to let.  The buy to let mortgage products are few and far between and those that are available are expensive and need a lot of hoops to be jumped through.  Something has to give!  Buy to let could be quite an attractive investment at the moment, but it is not for everyone, and until we see a relaxation in lending we will continue to see a shortage of affordable properties for rental. 

Comments:

So if the banks ease up on the restrictions on buy to let mortgages will we see a steady rise in available properties? Could this cause a glut of rental properties causing rents to drop? Just wondered...Darren Moloney July 20th 2010 13:07:34

Only if we go back to the crazy times of the mid noughties. The demand at the moment is far outstripping supply and it will be quite a while before it gets back in sync. Several national agencies are so worried about the lack of new instructions that they are actively looking to purchase agencies to get the required stockPeter Ellis July 22nd 2010 09:52:04