Rising tenant demand makes UK property landlords more confident as more plan to buy

Some 12% of landlords plan to purchase investment property in the second quarter of this year, compared with 10% in the previous three months and 25% say that tenant demand has grown in the first three months of 2010, the latest Paragon PRS Trends Report shows.
 
The value of the average portfolio has risen for the second consecutive quarter. Of those planning to purchase, terraced property is the preferred option, with just over two thirds of landlords, 67%, intending to purchase this type of property, followed by semi detached houses at 25%.
   
‘Demand for property investment has remained strong during the recession and has improved since house prices stabilised. Landlords know that the long term forecast for tenant demand is extremely healthy, with socio-economic and demographic changes leading to growth in the number of households calling the private rented sector home,’ explained Nigel Terrington, Paragon Group chief executive.
 
‘Government figures show that the private rented sector is the only housing tenure that is currently growing. The proportion of households in both owner occupation and social housing was in decline for the best part of the previous decade, and the private rented sector has picked up the slack. One in seven households now lives in privately rented accommodation,’ he added.
 
Looking forward, landlords expect tenant demand to strengthen considerably, with nearly four out of 10 landlords, 36%, forecasting demand for their property to be higher in 12 months time.
 
But access to mortgage finance remains an issue. Of those who attempted to secure mortgage finance for purchase or remortgage purposes, 82% said it was more difficult compared to the previous quarter, with 7% stating that it was easier
 
Yields were 6% during the period. Yields, a portfolio's annual rental income as a percentage of its total value, had been rising since the first quarter of 2008. However, for the past three quarters the figure has bounced between 6% and 6.2%
 
‘Landlords are in a strong position. They are enjoying unprecedented levels of tenant demand, and structural changes taking place in the UK will create further demand. As the Royal Institution of Chartered Surveyors recently highlighted, this is leading to higher rental income,’ added Terrington.
 
A lack of rental property in the UK is likely to get worse, according to research from the Association of Residential Lettings Agents (ARLA). Insufficient supply of good quality property means that the private rented sector (PRS) is struggling to meet demand, it said.
 
‘More than two thirds of our agents have seen demand outstrip supply across the country, there simply isn’t enough housing stock coming onto the rental market,’ said Ian Potter, operations manager of ARLA.
 
‘Investors need to be treated as businesses, with proper incentivisation to invest in and refurbish older properties. This will improve standards, help the environment with improving insulation, and encourage much-needed investment to help get the market back on its feet,’ he explained.
 
‘Banks need to be told to be more flexible about the provision of finance for the Buy-to-Let sector which has fuelled the supply of good quality homes, and saved this government from an even greater housing shortage. Without these kinds of measures there is a serious risk that a shortage or rentals will create another form of housing crisis,’ he added.