The independent letting specialist, Leaders, looks back at the market during 2011 and makes its predictions for 2012.
The lettings market during 2011 has been characterised by exceptionally high demand for accommodation with many tenants having to compete for a limited supply of properties.
This has led to rising rents, attractive yields and greater confidence in the market for landlords.
Leaders’ director, Allison Thompson, says:
“A consistent theme throughout 2011 has been insufficient property to meet demand.
“Whilst this has been frustrating because we have not been able to help as many tenants as we would like, it has been very positive for landlords who have seen their properties let quickly and for good rents.
“The slow sales market has been fuelling the rental market, pushing more people into either renting, letting or both while they wait it out.
“The start of 2011 saw the greatest shortage of property across all price ranges but stocks gradually improved over the year, bringing more balance to the market. That said, the New Year will, as always, be a busy time, and good quality properties will not stay available long.”
Leaders reports that all types of property let well during 2011, particularly newly built and better presented properties.
Tenants are renting for longer, on average 18-24 months. Many are saving a deposit to buy their own home or are not moving because of the costs involved and the lack of choice in the sales and rental markets.
This is good for landlords’ security but does mean that tenants are more discerning and will only consider well presented properties with modern kitchens and bathrooms and good quality, neutral décor.
Across Leaders’ 60 branches, demand has generally been highest for one and two bedroom properties and three bedroom family homes in the low-to-mid rent range, with lower demand for bigger, more expensive properties.
Higher value properties of £1500 + per month have been slower to let. However, 2011 has seen signs of improvement in the corporate market for executive apartments, with demand now similar to pre-recession levels in 2007/08.
Ms Thompson says:
“Many of our landlords have seen their rental income increase significantly this year and we have consistently secured higher rents when re-letting properties.
“However it should be remembered that these rent increases follow a period of falling or static rents from 2007-10, when supply exceeded demand and it was a tenants’ market.
“We expect the rise in rents to slow in 2012 to a more sustainable level but to remain strong. Despite the high demand, it is crucial that rents reflect these cost-conscious times; if a property is priced too high it will not let.
“An independent expert is key to valuing the property to ensure the best possible rent is achieved without risking costly void periods.”
The difficult economic climate has been evident in the increasing number of renters, many of them professionals, with adverse credit.
Leaders has also seen an increase in applicants offering rent in advance to secure a property to offset their negative credit history. In some areas there is a trend for renters to club together to rent a higher priced property that they would not otherwise be able to afford.
Ms Thompson says:
“Careful tenant vetting is vital. For extra peace of mind, many of our clients opt for our Premier Service & Rent Guarantee, which protects them against loss of income from rent arrears.”
Despite a background of rising unemployment, high inflation and stagnant pay, Leaders has experienced very low levels of tenant arrears, with only 4 per cent of more than 20,000 tenancies in arrears as of November 2011.
This is significantly lower than across the wider industry and is testament to the effectiveness of the firm’s tenant referencing procedure and swift response to resolves problems when arrears occur.
Looking ahead to 2012, Leaders predicts the market will be similar in terms of strong demand, but that property stocks will begin to improve as investors turn to the PRS as a viable alternative to the volatile stock market and low interest rates.
Ms Thompson says:
“We are seeing a small but significant increase in enquiries from buy to let landlords seeking our advice at the initial stage of purchasing which suggests that investment in the PRS will increase.
“Those who are investing now are benefitting from the lowest purchase prices for years and can expect yields of 5 or 6 per cent with good prospects for capital gains in the long term. We are also seeing a number of larger scale investors return to the market, diverting capital back into property.
“However, due to the financial climate, investors are being very cautious over their choice of property and will only proceed where they can secure a very competitive purchase price.”
In addition to new investment, Leaders expects more rental properties to come onto the market in the coming months from people giving up on the sales market, and from people who inherit property choosing to let rather than sell in the current market.
They are also seeing some long-term tenants moving out of the sector once they have saved a deposit to buy their own homes which is freeing up accommodation for new tenants.
Ms Thompson says:
“An increase in rental properties will benefit everyone in the lettings market and facilitate more movement for those relying on the PRS over the medium to long-term.
“Many couples and families need to move up the rental ladder to larger properties which will ensure continued demand across all property types.”
Whilst market conditions will remain positive for landlords and look set to improve for tenants in 2012, Leaders issues a warning about the continued lack of legislation in the industry.
Ms Thompson concludes:
“2011 saw the government confirming that it has no plans to regulate letting agents, a decision we are very disappointed by.
“At a time when more people than ever are turning to this sector, landlords and tenants need protection from unscrupulous and incompetent letting agents.
“Many are unaware that there is no proper regulation governing letting agents, ulespite the plethora of legislation that applies to letting itself.
“If letting agents do not know and comply with the regulations, properties can be unsafe, client money can be at risk and the landlord’s and tenant’s interests unprotected during the tenancy.”
With formal regulation of letting agents unlikely, Ms Thompson’s advice to landlords and tenants is simple: only use an agent with many years experience, a good reputation and above all, that is a member of a professional body such as ARLA, NAEA or RICS.
These organisations are self-regulating and ensure that member agents comply with a rigorous code of conduct and that clients’ money is held in separate, properly protected accounts.
