UK landlords expect rent rises to slow by next year

UK landlords expect annual rent growth to slow to 1.7% by next year, down from 3.7% currently, according to the latest sentiment survey.

However, a quarter want to buy more rental properties this year and 60% thing it is a good time to invest in the buy to let property sector, the survey from UK lettings agent network Your Move and Reeds Rains.

Overall it suggests that after a recent spurt of rent growth, landlords anticipate that rent rises will taper off over the next 12 months, seeing a sharp slowdown from the current rate of annual rent growth to a steadier trajectory.

According to the latest buy to let index from Your Move and Reeds Rains, average residential rents across the UK climbed 3.7% in the year to March 2015, the fastest pace for two years, but that is set to change.

Indeed, the proportion of landlords who will not raise their rents in the next 12 months has increased from 56% in September 2014 to 60% currently. Only a minority of 40% intend to increase their rental prices before March 2016.

The research also shows that over the last six months some 45% of landlords have witnessed an increase in tenant demand, rising from 41% of landlords in September 2014. There has been a boost in lettings activity recently, with new tenancies agreed across England and Wales climbing 6.9% in the month to March 2015.

As a result, the proportion of landlords who expect tenant demand to grow further now stands at 63%, up from 56% in January 2014. Only 3% of landlords currently anticipate demand for rental properties to fall within the next two years.

However, strong demand for homes to let is a considerable factor encouraging further investment into the private rented sector. Some 60% of landlords now believe that it is a good time to invest in buy to let, a rise from 54% of property investors in September 2014.

The main reason underpinning this increase in confidence is that buy to let offers better capital returns compared to other forms of investment, cited by 54% of landlords who think it is a prime time to purchase a rental property. Meanwhile 40% of property investors perceive now to be an ideal time given that current market conditions offer the opportunity to buy properties at more attractive prices, as price growth has stabilised.

Some 18% of landlords have already expanded their buy to let portfolio in the last year, and a further quarter of landlords expect to purchase another rental property in the next 12 months, an uplift from 22% in September, in a sign of rising optimism in buy to let as an investment.

According to Adrian Gill, director of Your Move and Reeds Rains, demand for homes to rent isn’t going to dissipate. ‘First time buyers have been thrown a lot of floating aids in the past year, most recently the reform of stamp duty and Help to Buy ISA, but the private rented sector is still vital in plugging a hole until more households can get their finances above water,’ he said.

He also pointed out that saving for a deposit is like swimming against the tide while rates on savings are sinking, and in addition to this, there is a separate pool of people depending on the flexibility of rental accommodation for their careers. ‘This supply-demand imbalance has previously caused a strong tide of rent rises, but this looks set to ebb away to calmer levels with a fresh fleet of rental properties on the horizon,’ he added.

He explained that competition for available homes to let is supporting buoyant yields, as well as sheltering landlords from the volatility of void periods and ensuring stability and peace of mind with regards to rental income.

‘And with house price growth consistently cruising forward and propelling longer term capital gains, awareness of buy to let as an alternative investment to other mainstream assets has soared. The current divergence between yields and interest rates places buy to let head and shoulders above the low returns on other asset classes. Existing landlords have certainly caught the buy to let bug, and with extensive reforms to pension annuities now in place, investment is cropping up from new players too,’ said Gill.

Overall 22% of landlords have found their buy to let mortgage payments becoming cheaper over the last twelve months, a jump from 14% in September 2014. Over the same period, the proportion of landlords who thought buy to let mortgage payments were becoming more expensive has almost halved, falling from 39% to just 21%.

Of those who have tried to raise mortgage finance in the last 12 months, 14% believe it is now easier to secure funding than a year ago. This marks an improvement from just 8% in September. Indeed, with rock-bottom interest rates keeping mortgage rates low, 21% of landlords list the availability of cheap finance as a crucial motivation to invest in rental properties at the moment, which has risen significantly from just 11% in the third quarter of 2014.

While returns on buy to let properties may be a key motivation for initially investing into buy to let in the first place, for the vast majority of landlords, 62%, the most important factor when letting out a property is to have tenants they trust. The second most important factor was to have tenants that pay their rent on time, cited by 25% of landlords.

Securing the highest possible rental yield was actually ranked bottom of landlords’ priorities about their buy to let investment, the most important for just 4% of those polled. Of those who intend to raise rents in the next year, covering the cost of inflation is the principle motivation for 43% of landlords. Paying for maintenance work is the second most significant reason behind having to increase their rental prices, cited by 35% of buy to let investors.  

Ahead of the general election, 41% of landlords surveyed do not support proposals to ban charging fees to tenants, with only 32% in support. The key reason behind this is that abolishing the fees risks allowing tenants with less stable finances to rent properties they cannot afford, cited by 61% of concerned property investors.

Some 25% of landlords are also worried that tenants would move house more often if they don’t have to take these one off tenancy fees into account, giving landlords less stability and making them susceptible to void periods.
 
Overall, 36% of landlords prefer one year to be the maximum length of rental tenancy