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The Two Sides of the Rental Market

The Two Sides of the Rental Market

As estate agents specialising in sales and lettings, we at Robert Oulsnam and Company have to keep a close watch on the rental market. What we see emerging is two interconnected developments – rental prices are increasing across the UK, whilst buy-to-let remains an attractive and highly remunerative option for investors and already established landlords.

The UK rental market is currently marked by certain structural imbalances that dictate rental prices and the yields available to landlords. Demand to rent is very high, and increasing every year as house prices and tougher restrictions on mortgage approvals make renting a much more attractive prospect than purchasing a house.

Despite the Help-to-Buy scheme launched by the government, many still prefer to rent in the UK.
This creates a major demand for rental properties that is a long way from being met with available housing; hence the cost of renting is being pushed up.

A report from the Sequence group of estate agents shows that the average UK rent reached £784 during May, up by 11 per cent from May 2013. Demand from tenants rose across the UK by 14 per cent, whilst the supply of rental properties decreased by 7 per cent.

In London the picture is even more extreme – rents in the capital rose by 7 per cent to an average of £1468 a month. Staggeringly, within London the demand from tenants for rental properties grew at a rate that was 11 times the increase in the amount of properties available. Demand grew by 35 per cent, whilst the supply of properties grew by only 3 per cent.

Conversely, the buy-to-let market remains a lucrative one for landlords and investors. According to a report by LSL Property Services, the average yield for a UK landlord in the past year was a return of £19,475, of which £8,158 came through rental payments, and a further £11,317 through rising property prices.

Confidence amongst landlords is reported to be high at present. Survey evidence released by the specialist buy-to-let lenders Paragon Mortgages suggests an average yield for landlords of 6.2 per cent in the second quarter of this year.

Curiously the highest yields were outside of London, in areas such as the North-West, the West Midlands and Wales. In these areas the average yield was 6.4 per cent, as opposed to yields of 5.7 per cent for landlords in the capital.

Within the survey results it was also found that 16 per cent of landlords were sufficiently confident that they intended adding to their property portfolio during the third quarter of this year, mostly through buying up terraced properties.

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