Optimism in UK private rental sector with tenants likely to see rents rise

Four in 10 landlords in the UK anticipate they will raise rents in the next year, with tenants likely to face rise of an average of 3.7%, according to the latest LSL landlord sentiment survey. Overall one third of landlords expect they will raise rents above 1%, with an average estimate of 3.7%, but this is down by 0.9% compared to the last survey in December 2012. Currently, average rents are rising at an annual rate of 1.5%, according to LSL’s latest buy to let index.

Out of those that expect to increase rents, 56% indicated they will do so to cover the cost of inflation. While conversely over half, 57%, expect to leave rents unchanged in 2014.

‘Even with an increase in rental properties available, demand in the private rental sector continues to outstrip supply in many areas, especially in London,’ said David Newnes, director of LSL Property Services, owners of Your Move and Reeds Rains.

‘In the months ahead, this will enable landlords to push up their rental prices when letting their properties, putting a stop to inflation from eating into their rental income. This is underlined by the fact that covering the cost of inflation is the main reason cited by landlords expecting to increase rents,’ he explained.

‘With demand rising, greater emphasis must be on the supply of homes. While the government plans outlined are a welcome move, this is only the start of the long term solution,’ he added.

The survey report points out that with current yields at 5.3%, property investment is proving to be a worthwhile alternative to historically low annuity yields and a volatile stock market. Taking into account both capital accumulation and void periods between tenants, total annual returns on an average rental property increased to 8.8% in December, compared to 8.3% in November, reflecting the growth in house prices.

‘Rising rents are delivering strong yields to investors, making a powerful case for the rental market for those in search of a beneficial, long term investment. However buy to let investment is not a license to print money, and it requires the same level of research and planning as any other business investment,’ Newnes said.

‘The success of the investment depends on the property remaining occupied to deliver ongoing rental income. Before taking the plunge it is important to be aware of factors such as the location of the property, which can determine the level of tenant demand. For instance, those nearest to transport hubs will usually be of the highest demand, especially in larger cities like London,’ he added.

The survey also found that December saw annual growth in lettings activity, with new tenancies agreed across England and Wales up by 7.7% compared to December 2012. As a result, void periods in private residential property in the UK have fallen, helped by this solid tenant demand.

Newnes pointed out that as the UK lettings market powers ahead in 2014, landlords shall continue to benefit from falling void periods, while tenants will face intense competition for the best properties.

‘While void periods are falling, the private rented sector gives tenants flexibility, so as tenants’ circumstances change; there are still occasions when a property might be empty. Of course, it is in every landlord’s business interest to maintain good, long lasting tenancies and avoid voids. At a time when demand far outstrips supply, it is imperative that empty properties are filled quickly, following any necessary maintenance and improvements,’ he explained.

‘Landlords can minimise void periods by talking openly with their tenants about their future plans in order to prepare for when the property might be empty. Overall there’s an air of optimism surrounding the rental market now that inflation is firmly back on track as wage expectations start to improve. A rise in affluent tenants will help further boost the success of the private rental sector this year,’ he added.