Landlords expect rent rises to slow over the next 12 months to below the target rate of inflation, according to a new survey.
The ‘sentiment’ survey of more than 1,100 landlords conducted by Your Move and Reeds Rains found that, on average, landlords estimate that rents will increase by 1.8% in the next 12 months. This is lower than the Bank of England’s 2% target for inflation, and would also represent a slowdown on the current pace of annual rent growth. The latest Buy-to-Let Index from Your Move and Reeds Rains reported that average residential rents across the UK are rising at an annual rate of 2.4%.
The majority of landlords polled do not intend to raise their rents in the next year. 43% expect to raise rents in the coming 12 months.
Of those who intend to increase rents, 57% of landlords cite covering the cost of inflation as their main motivation. Paying for maintenance work is the second most significant reason, listed by 31% of landlords.
Over the last six months, 41% of landlords report seeing a rise in tenant demand. This comes as lettings activity has been growing, with new tenancies agreed across England and Wales up by 6.9% compared to August 2013, according to the Your Move and Reeds Rains Buy-to-Let Index. Tenant demand has helped reduce average void periods in the private rented sector, ensuring greater stability of income for landlords. In the past year, 18% of landlords have already added to their portfolio of rental properties.
The report said this appears to be inspiring confidence among property investors – with 21% of landlords believing that now is a good time to invest in buy-to-let. Of those who report it is currently a prime time to purchase a rental property, 55% cited tenant demand as a key motivation for investment. Attractive property prices are the second biggest driver, reported by 54% of landlords, while 45% pointed to better capital returns on offer compared to other forms of investment.
The proportion of landlords who expect tenant demand to increase further now stands at 63%, up from 56% in January. Only 5% of landlords currently anticipate a fall in demand for rental properties over the coming years. As a result, 22% of landlords intend to expand their portfolio over the coming year – an increase from 18% in January 2014.
David Newnes, director of Your Move and Reeds Rains, said: “Demand for rented accommodation is climbing, and there’s little sign of this stopping. While Help to Buy and higher LTV lending are enabling first-time buyer activity, strong house price growth this year has lifted homeownership a few steps out of reach for many, and the private rented sector remains the safety net supporting those still saving for a deposit. This is in addition to the thousands of people who rely on renting to offer them flexibility and freedom in their working lives.
“This demand is also powering more supply. Secure house prices and spirited tenant demand are encouraging budding buy-to-let investors and existing landlords to add to the number of available homes to let. The benefits of more investment will be felt in tenants back pockets at the end of the month, as the strain of rent rises eases further.”
For 39% of landlords, buy-to-let mortgage payments have become more expensive in the past 12 months.
In addition, 42% of landlords who have tried to raise mortgage finance in the last 12 months have found it more difficult compared to a year ago. This is an increase from 35% in January 2014, highlighting the impact of a tighter lending environment.
One in 10 landlords still lists the availability of cheap finance as a key reason why it is a good time to invest in buy-to-let – though this is down from 17% in January.
Newnes added: “Confidence in the overarching economic recovery is building, with growing employment, and households seeing the everyday benefit of low ‘shop price’ inflation. Alongside the shakeup to pension annuities announced this year; this is inspiring people to seize on the opportunity of attractive returns on offer.
“The mortgage market was jolted back into renewed vitality this year, but the more recent period of recalibration has shifted lending conditions. Securing mortgage finance is not a conundrum restricted to first-time buyers, but is a considerable hurdle for landlords too. The government and Bank of England need to ensure that any further regulatory changes do not lift lending out of reach for good applicants, and destroy growth at the same time. Balancing the asymmetry between supply and demand depends on the growing number of buy-to-let investors being able to acquire affordable mortgages, in order to broaden the pool of rental accommodation on offer and keep rent rises at sustainable levels.”
