The property supply shortage that has plagued the rental sector in recent years looks set to ease this year as more private landlords prepare to invest in the buy-to-let sector, according to Rightmove’s first Rental Market Forecast of 2013.
An increase in landlords – from experienced professional landlords to virgin landlords investing for the first time – is likely to have a cooling- effect on rental price growth, much to the relief of beleaguered tenants.
Miles Shipside, director and housing market analyst at Rightmove, said: “Buy-to-let investors, attracted by evidence of sustained demand and strong yields, will provide much needed supply relief to ‘Generation Rent’. A marketplace where landlords are achieving satisfactory returns will relieve some of the supply pressure in 2013, though the task seems to be falling on the comparatively rag-tag army of private landlords rather than more strategic institutional investment.”
Rightmove’s latest research indicates that many accidental landlords are keen to leave their ‘amateur’ status behind and invest further. 12% of accidental landlords has found their unplanned, and in most cases unwanted, foray into property letting so rewarding that they now want to build a portfolio by purchasing additional property to let. Accidental landlords make up around 30% of all private landlords according to Rightmove’s research and are largely seen as a casualty of the credit-crunch. However, rising rents and a lack of voids have alleviated their plight. Though not all will be willing or able to buy another property to rent out, 68% stated that they intend to hold onto their rental property. Just 16% stated that they still want to sell it as soon they can.
Shipside said: “Though not landlords by design, many of those accidentally thrust into the landlord arena have not only survived but thrived in many instances. From being one of the major casualties of the post-credit crunch market, some accidental landlords are now major beneficiaries. They provide a fascinating insight into the structural shift we have seen in the private rented sector over the past few years.
“The growth in rental demand and appeal of the buy-to-let sector to lenders has helped turn a chance encounter with the rental market into a further and valuable source of fresh supply to satisfy the needs of those trapped by ‘Generation Rent’.”
Separate investor research by Rightmove shows that 74% of professional landlords also intend to add to their rental portfolio in the next 12 months, giving a much needed boost to the available housing stock. As well as existing landlords adding to the rental stock supply, the proportion of ‘virgin landlords’ intending to purchase a buy-to-let property for the first time in 2013 is now at its highest level for more than a year.
Shipside added: “While the cavalry charge from major institutions seeking to invest in the private rented sector has so far failed to materialise, private landlords, whether accidental, virgin or professional, are perhaps enjoying the respite and seizing the opportunities that come with having the battlefield to themselves.”
Landlords are attracted to invest by a combination of sustained demand and attractive yields. The proportion of ‘trapped renters’ – those tenants who state they would like to buy but can’t afford to – remains stubbornly high at 53%. They are joined by a growing proportion of tenants who state that they are not interested in buying as renting suits them. This group now stands at one in six (16%), the highest level ever recorded by Rightmove. In addition, those tenants who expect to stay in rented accommodation for three years or more has jumped from 32% in last quarter’s survey to 37% this quarter.
As well as tenant demand, buy-to-let landlords also require an enticing return in order to invest and the current private rental sector appears to offer that. 88% of landlords surveyed report that the minimum average return on rental investment they are seeking is 5%. Rightmove data finds that current average yields in the UK are at 5.73%, meaning the ‘threshold figure’ that the majority of landlords are seeking is being met and the right balance of rent versus return is being achieved.
Shipside said: “In locations where property prices have fallen substantially or rents have risen more dramatically, landlords have invested and many seem willing to invest again. Some higher priced areas remain unattractive to the hard-nosed investor or risk-averse lenders. Those areas will continue to see the supply of rental property outstripped by demand putting further upwards pressure on rents. However, overall greater supply of rental property coming on tap is good news for tenants as it is likely to lessen the pace of rental growth in 2013.”
