Feb 23, 2011

Demand and optimism in UK rental property market remains high

Demand for rented residential properties in the UK has hit a two year high but rents have fallen slightly for the second month in a row.
Four out of 10 landlords reported strengthening levels of tenant demand in the final quarter of 2010 and yields remain steady but voids fell, according to the latest Private Rented Sector Trends report from Paragon Group.
It also found that mortgage finance availability in the buy to let sector is improving but still scarce as the proportion of landlords reporting growing levels of tenant demand reached its highest level since the final quarter of 2008.
While the latest buy to let index from LSL Property Services shows that rents fell slightly in January compared with December but they are still 4% higher than a year ago and are showing signs of renewed growth in several areas of the country, according to the latest buy to let index.
Average rents fell to £682 per month as increasing investment pushed up supply, the index shows. It also found that tenant arrears also declines but remain high with 11% of all UK rent in arrears and total annual returns declined again as annual house price growth declines.
This is the second successive month rents have fallen. The average yield fell slightly to 4.9% in January, as rents declined at a faster pace than rental property values.
‘The recent loosening in the buy to let mortgage market has boosted the supply of rental homes on the market, a crucial factor in the temporary drop in rents. In the last quarter of 2010, the number of buy to let loans leapt by 7% according to Council of Mortgage Lenders,’ said David Newnes, estate agency managing director of LSL Property Services, owners of Your Move and Reeds Rains.
‘With more products coming onto the market, there are signs that this trend is continuing into 2011, allowing a growing number of professional landlords to get onto the market, or broaden their portfolios, and take advantage of near record rental income and strong tenant demand. International investors, too, have played their part, looking to place their cash in UK bricks and mortar while yields look attractive and properties are affordable,’ he added.
Despite the slight decrease in rents, they are still 4% higher than a year ago - and are showing signs of renewed growth in several areas of the country. Rents in the East and West Midlands increased by 0.9% and 0.8% respectively, 0.8% in Yorkshire and the Humber, and 0.2% in London. However, the overall drop was driven by larger falls in the East of England, down 2.5%, Wales down 2.1%, the North West down 1% and decreases of 0.4% in the South West and South East.
But with the Paragon report showing that four out of 10 landlords said tenant demand grew during the quarter, compared to 36% during the third quarter, the proportion of landlords reporting growing levels of tenant demand has now risen for six consecutive quarters, which has coincided with a shortage of mortgage finance in the owner-occupied mortgage sector.
Just 4% of landlords said tenant demand fell during the quarter, the lowest proportion since the third quarter of 2008 and the second lowest level since Paragon started collating the data in 2004.
‘Tenant demand shows no signs of slowing down and in some busy markets, such as London, there is anecdotal evidence of sealed bids being used for certain properties. This will become more commonplace across the UK unless the PRS is able to expand to meet higher levels of demand. Four out of 10 landlords say that tenant demand grew during the period, which is a significant number and has major implications for renting in the UK if the issue of rental property supply cannot be addressed,’ said Nigel Terrington, Paragon Group chief executive.
The also found that there has been an improvement in the availability of buy to let mortgage finance with 19% of landlords saying that mortgage finance was either widely or reasonably available, up from 17% during the third quarter. Conversely, the proportion of landlords stating that mortgage finance was very restricted dropped from 29% in the third quarter to 26% in the fourth.

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