Posts Tagged ‘Rental’

Strong Demand For Rented Property

Friday, August 27th, 2010

RICS has reported that the lettings market remains buoyant, as increased tenant demand and a shortage of properties pushes rents higher.

The latest RICS Residential Lettings Survey found that 26% more chartered surveyors reported a rise in demand for property rather than a fall, which was the second consecutive quarter that lettings demand has risen at a pace above the long run average. Tenant demand increased across all regions, but was strongest in London and the East of England. Continued difficulty in securing mortgage finance, worries over a double dip in housing and large deposits required by lenders are leading to higher numbers seeking to rent rather than buy.

As a result, rents increased for the second consecutive quarter, with 27% more surveyors reporting a rise in rents than a fall. Just a year ago the picture was very different, as over supply pushed rents down and 29% more surveyors reported falling not rising rents.

Although interest rates are at a record low, difficulty in securing buy-to-let mortgages is contributing to the lack of supply. New supply of property to the market remains low and has now fallen for four consecutive quarters, although at a slightly slower pace. In the run up to July the net balance of surveyors reporting a fall in landlord instructions was -6, in comparison to a net balance of -12 in the previous quarter.

However, existing landlords do not appear to be in any rush to dispose of their property; just 4.1% of landlords said they intended to sell their properties at the end of a tenancy agreement.

Looking ahead, the outlook for rents remains positive. 33% more surveyors expect rents to increase over the next quarter rather than fall. Rents for houses are expected to marginally outperform flats, with the net balances for this forward looking indicator moving to +34 and +31 respectively.

RICS spokesperson James Scott-Lee said: “Supply of lettings property continued to fall in the three months to July although at the slowest pace in a year which amid rising tenant demand has helped propel rents higher for the second consecutive quarter. Existing landlords keen to expand their portfolio may still be struggling to access the necessary finance despite improved market conditions.

“However, there is a possibility the lettings market could face a modest increase in supply in the coming months. The latest RICS Housing Market Survey shows a lack of funding has stifled demand from buyers which may cause some moderation to rents as more opt to let than sell.”

David Salusbury, chairman of the National Landlords Association, said: “We welcome the latest RICS survey findings which point to strong demand for rented property. The growing need for private-rented accommodation demonstrates the importance of the role played by residential landlords.

“However, it is not all good news. One in five landlords are experiencing rent arrears and many are concerned about the increase in Capital Gains Tax. Added to the forthcoming cuts to Local Housing Allowance and the possibility of increased interest rates, it is clear any increase in rents will be quickly offset by these additional factors that have to be taken into account.”

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Rental Supply Hits All-Time Low

Friday, July 16th, 2010

Tenants are outstripping the supply of available rental properties, according to the Association of Residential Lettings Agents (ARLA).

ARLA research revealed that 70% of its member offices reported greater numbers of tenants than housing stock, compared to 59% last quarter and 24% in September 2009.

The South East was found to have the highest incidence of the issue, with 76% of members reporting tenants outstripping supply.

Ian Potter, operations manager of ARLA, said: “The spring period would usually see a rise in rental properties coming onto the market and, although there is some evidence of landlords considering selling up, it is not enough to counteract the change in supply.

“This situation has been deteriorating rapidly in recent months, as the supply and demand of homes to buy is also swinging out of kilter, making the prospect of a severe rental housing shortage ever more likely.”

Potter added that the rise in Capital Gains Tax announced in the emergency Budget could discourage potential landlords from investing in the sector.

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Rental Void Periods Stabilising

Wednesday, April 28th, 2010

New figures from the National Landlords Association, supplied by research consultants BDRC Continental, show that void periods for rental property remain high but have stabilised.

In March 2010, 52% of landlords had experienced voids in the previous 12-month period. Although still posing a threat to landlord portfolios, this figure is a reduction from 55% during the last three months of 2009. The data also showed that the average duration of voids dropped from 19 days to 17 days.

Despite a marked increase in tenant demand and a reduction in supply as ‘reluctant landlords’ are able to sell up, there is still only a slight improvement in rental voids.

The strategy adopted by landlords for covering voids continues to vary depending on portfolio size. Although larger landlords are most able to offset the costs of voids with rent from other properties, 43% of landlords claimed to use personal savings to plug the shortfall in meeting mortgage repayments.

David Salusbury, chairman of the NLA, said: “No landlord likes void periods. They can end up being very costly indeed. Although incidences of voids have leveled off, over half of the landlords questioned have experienced voids in the past year, albeit for a shorter length of time.

“The best way to deal with void periods is to avoid them altogether. As with many issues in the letting of residential property, open and respectful channels of communications between landlords and tenants will pay dividends.”

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UK Facing Severe Rental Housing Shortage

Tuesday, April 27th, 2010

There is not enough rental property to meet consumer demand in the UK – and the situation is worsening, according to Q1 research from the Association of Residential Lettings Agents (ARLA).

Insufficient supply of good quality property means that the private rented sector (PRS) is struggling to meet demand. With the PRS picking up the slack from the housing market, ARLA believes that the next Government must focus on averting the sector from crisis.

“More than two thirds of our agents have seen demand outstrip supply across the country – there simply isn’t enough housing stock coming onto the rental market. The Government’s move to help first-time buyers by raising the Stamp Duty threshold was a step in the right direction. Now we need to see tangible measures to support the PRS,” said Ian Potter, operations manager of ARLA.

“Investors need to be treated as businesses, with proper incentivisation to invest in and refurbish older properties. This will improve standards, help the environment with improving insulation, and encourage much-needed investment to help get the market back on its feet.

“Banks need to be told to be more flexible about the provision of finance for the Buy-to-Let sector which has fuelled the supply of good quality homes, and saved this government from an even greater housing shortage. Without these kinds of measures there is a serious risk that a shortage or rentals will create another form of housing crisis.”

The research, conducted among UK letting agents and landlords, shows that during Q1 2010, two thirds (59%) of ARLA member agents reported more tenants than properties available. This is a 50% rise on the last quarter (41%) and in Q3 2009 the figure was just 24%.

The speed with which tenants are snapping up homes to rent is also telling – properties are vacant for an average period of just 3.6 weeks, which is down from 4.2 weeks at the same point last year.

Regional Perspectives

London Lucy Morton MARLA, Managing Partner – W.A. Ellis LLP: “The lack of stock is almost at crisis point in central London. In a year, it has dropped by about 60%. The upside to this is obviously that rents are rising dramatically and, in some cases, are back to pre-credit crunch levels.”

North West – Greater Manchester Robert Jordan FRICS, FARLA Hon. Chairman, Jordan’s: “There is a real shortage of good quality property coming on to the market. Tenants are staying much longer in their rented property so the traditional ‘churn’ in the market has all but dried up. Governments seem not to understand that the PRS is a very important element in the housing supply chain. There is far too much legislation which puts off new landlords entering the market. They need incentives which will help the one million homeless in this country find a decent home to live in.”

Scotland – Edinburgh and Glasgow Fiona Docherty, Managing Director, Ryden Lettings: “The position in Edinburgh and Glasgow mirrors that of the UK as a whole with far more tenants than suitable properties. Properties which remain in greatest demand are one and two-bedroomed properties towards the lower end of the market. This underlines the difficulties people are having in being able to buy particularly at the first-time buyer end of the market. Additionally, landlords are taking their properties from the rental market and placing on the sales market buoyed by reported improvements, whether these translate into sales only time will tell. In the meantime, people need somewhere to stay.”

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Growing Proportion Of Landlords Planning To Purchase

Wednesday, April 14th, 2010

Growing proportion of landlords planning to purchase
14 April 2010

A growing proportion of landlords are planning to purchase residential property for investment purposes, Paragon Mortgages’ PRS Trends Report reveals.

The quarterly snapshot of the private rented sector and buy-to-let market shows that 12% of landlords are planning to purchase in the second quarter of 2010, compared to 10% who said they would buy in the first quarter of the year.

Of those planning to purchase, terraced housing is the preferred option, with just over two thirds of landlords (67%) intending to purchase this type of property, followed by semi-detached housing (25%).

Nigel Terrington, Paragon Group chief executive, says:

“Demand for property investment has remained strong during the recession and has improved since house prices stabilised. Landlords know that the long-term forecast for tenant demand is extremely healthy, with socio-economic and demographic changes leading to growth in the number of households calling the private rented sector home.

‘Government figures show that the private rented sector is the only housing tenure that is currently growing. The proportion of households in both owner-occupation and social housing was in decline for the best part of the previous decade, and the private rented sector has picked up the slack. One in seven households now lives in privately rented accommodation.”

The Q1 2010 PRS Trends Report, which covers the three months to March 31, also shows:

- Tenant demand remains strong, with 24% of landlords stating that demand grew during the quarter, compared to 8% who said it was declining. The proportion of landlords stating that tenant demand was declining was lower than the previous quarter, when 13% of landlords said tenant demand was falling

- Looking forward, landlords expect tenant demand to strengthen considerably, with nearly four out of 10 landlords (36%) forecasting demand for their property to be higher in 12 months’ time

- The average portfolio value increased for the second quarter in succession, rising by 6.1% during the period to £1.52 million. This figure takes into account both property values and sales and acquisitions, so it could be a sign of landlords adding to their portfolios, as well as firmer house prices

- Landlords expect the average value of their portfolios to be 1.2% higher in twelve months’ time

- Access to mortgage finance remains an issue. Of those who attempted to secure mortgage finance for purchase or remortgage purposes, 82% said it was more difficult compared to the previous quarter, with 7% stating that it was easier

- Yields were 6% during the period. Yields, a portfolio’s annual rental income as a percentage of its total value, had been rising since the first quarter of 2008. However, for the past three quarters the figure has bounced between 6% and 6.2%

Nigel Terrington adds:

“Landlords are in a strong position. They are enjoying unprecedented levels of tenant demand, and structural changes taking place in the UK will create further demand. As the Royal Institution of Chartered Surveyors recently highlighted, this is leading to higher rental income.

“Whilst this is positive for existing landlords, it emphasises the vital need to expand PRS supply. Supply is being inhibited by a lack of available mortgage finance and there is a danger that households could eventually be priced out of the sector.”

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Rental Sector Grows 4.1%

Tuesday, March 9th, 2010

Forty years ago home ownership may have been the route of choice but according to research by the Communities and Local Government’s English Housing Report, more and more homeowners are becoming dependant on the Private Rented Sector.

In their report they revealed that since 2001, the number of UK households renting has risen from 1 million to 3.1 million people. Similarly this sector has rapidly grown in dominance increasing from 10.1% in 2001 to 14.2% in 2008-09. These figures appear to be working in direct correlation with the decrease in home ownership which has dramatically dropped in popularity from 14.8 million people to 14.6 million in the last 2 years.

Speaking on these statistics, Nigel Terrington from Paragon Group feels that they are proof that the government needs to recognise the growing importance of the rental sector and remove all the red tape from property investment so property investors can effectively invest in property.

With the UK population expected to grow by 10.6 million people by 2033, and the government not mustering enough property developments to cope with increases in housing demand, the government need to get their act together and acknowledge that the property market is vastly different from 40 years ago.

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UK Rental Sector Rises By 1m in 10 Years

Monday, March 1st, 2010

The Communities and Local Government’s English Housing Report, published this week, shows that the number of households renting privately has risen by one million since 2001, from 2.1 million to 3.1 million in 2008-09.

The Private Rental Sector now accounts for 14.2 per cent of all households in England, up from 12.7 per cent in 2007 and 10.1 per cent in 2001.

The report also revealed the number of owner-occupier households decreased from a peak of 14.8 million in 2006 to 14.6 million in 2008-09.

The proportion of households in owner-occupation has been in decline since 2003, falling from 70.9 per cent to 67.9 per cent during the period. The proportion of social renting households is also in decline, falling from 19.5% in 2001 to 17.7% in 2007, although there was a slight pick-up to 17.8% in 2008-09.

Of those surveyed, 41 per cent of private renters rely on the PRS for their long-term housing needs and have no intention of purchasing a home. One-person households are the most common type of household in the PRS (30%), followed by couples without children (25%) and couples with dependent children (17%)

The PRS provides housing for a wide range of age groups – 48 per cent of private renters are aged 34 or under, with 22 per cent in the 35-44 age group, 12 per cent in 45-54 group and 16 per cent over the age of 5. The survey also showed a diverse economic status, with 61 per cent of households in full-time employment, nine per cent in part-time work, five per cent unemployed, nine per cent are retired and 17 per cent are classed as ‘other inactive.’

Nigel Terrington, Paragon Group chief executive, said: “The CLG’s figures highlight the diverse range of households who call the private rented sector home. The sector’s importance to the UK’s housing needs is growing annually as increasing numbers of people decide to rent – owner-occupation has been in decline since 2003 and we believe that this trend will continue as potential buyers are either unwilling or unable to step on the housing ladder. The UK’s population is forecast to grow from 61 million today to 71.6 million by 2033, but housing completions aren’t keeping pace with household formation and there is growing dislocation between people’s desire to purchase and their ability to do so.

“In addition, the UK is experiencing major socioeconomic and demographic changes. There are growing numbers of single person households, economic migrants and students, and these groups all have a greater propensity to rent rather than buy. People are also getting married and starting families at a later age, so the average first-time buyer age is creeping up, while affordability is a growing problem for most people that want to get on the housing ladder.

“The Government must recognise the importance of the PRS to the UK’s housing needs and foster an environment that encourages the continued investment in the sector by individual landlords. It needs to ensure that the sector isn’t dominated by red tape and that there is available finance to enable landlords to expand the number of properties in the PRS. If the sector is unable to grow to meet demand, we are likely to experience rental inflation and people, including the most vulnerable households, being priced out of the sector.”

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Rental yields fall to 4.75% in January

Saturday, February 13th, 2010

Yields on residential property fell to their lowest levels since August 2008 as property prices powered ahead.

According to the latest buy-to-let index from LSL Property Services, yields peaked at 5.1 per cent in March 2009 when house prices reached the bottom.

Rents fell 0.5 per cent in January and are now two per cent lower than in September 2009 following the fourth month of consecutive declines. Declines were broadly spread by region. By contrast, house prices are 3.3 per cent higher.

This followed a period of more intense activity in the housing market as investors rushed to benefit from the Stamp Duty holiday. The additional supply of rental housing pushed rents lower.

LSL said total returns in January were 16.7 per cent on an annualised basis. This means a landlord would make a total return of GBP 27,500 on a typical property this year. Almost GBP 20,000 of this return would be in the form of house price inflation.

David Brown, commercial director of LSL Property Services, said: “Landlords moved fast to add to their portfolios before the Stamp Duty holiday ended in December. This has meant higher rental supply at a time of year when tenant demand is traditionally quieter. Landlords have had to cut rents in order to avoid even costlier void periods.

“Sacrificing a few pounds a month in rent to save themselves an average of GBP 1600 tax on each property bought was a very shrewd move as it would take years to recoup that saving through gradual rent hikes. Now the holiday is over, it’s crucial landlords don’t lose sight of rents. Total returns look very enticing at present as house price increases contribute a larger share of a landlord’s profit,” he said.

Rent arrears fell in January, however, from GBP 34.1m to GBP 247m in just one month. Tenants are usually slower with their December rent, holding back to smooth their Christmas cash flow, said LSL, but serious arrears held steady at GBP 24m.

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Buy To Let Market Sees Stronger Annual Returns

Wednesday, December 16th, 2009

The mini-boom in the rental market over the summer has paused for breath, according to the latest Buy to Let Index from LSL Property Services, which owns the UK’s largest lettings agent network, including Your Move, Halifax, and Reeds Rains

While house prices in November chalked up their seventh successive monthly gain, lifting home values 5% from their April 2009 low, rents slipped back for a second month running, falling 0.6% in November to take average rents back to levels at the end of August. This follows four months of rapid rental inflation during the summer when rents rose at an annual pace of 13%.

Rents fell fastest in the south east, down 3.3% in the month.  Half of the country’s regions saw declines, with only the midlands and east of England seeing increases in November.

With house prices having risen at twice the pace of rents over the last seven months, landlords saw yields slip to 4.9% in November, a level last seen in November 2008. Adjusted for void periods (when a rented property lies vacant between tenancies) yields were 0.3% lower.

Nevertheless, as the worst of the house price falls in 2008 drop out of the figures, annual returns continue to improve.  Investors buying property a year ago have made a total return of 4.1%, a combination of a small loss of 0.4% on lower house prices, and rental income adjusted for average void periods.

This is the best annual total return on LSL’s record (which begins with property purchased in June 2007) and now far exceeds that available on regular deposit accounts for the first time since the credit crunch began.

In November, a typical rental property made £809 in capital gains and earned £665 in rental income, a total of £1,474.

David Brown, commercial director of LSL Property Services said:

“Property bought a year ago and rented out is now making good returns for investors. Those who bought at the April low point are doing even better. Landlords are making impressive capital gains as each month goes by.

“To some extent the recent fall in rents is a seasonal phenomenon. Tenant demand slackens off in the late autumn and landlords are less able to charge a premium.  But it may also reflect an underlying recognition that rapid summer rent increases had begun to race ahead of peoples’ ability to pay. We do not expect a repeat of the relentless monthly declines in rents seen from late 2008.”

Tenant arrears worsened in November. 525,000 tenants had not paid their rent on time in November, up from an unusually low 495,000 in October. Collectively, they owed £261m in overdue rent. Serious arrears (more than 2 months) were broadly stable.

David Brown concluded: 

“Arrears usually spike in December as tenants hold back their rent a few days to help them get through Christmas. There seems to be an earlier uptick this year but the fact we are not seeing a deterioration in seriously delinquent tenants supports should give cause for comfort.

“In fact, arrears are still slightly below the average for the year.  2009 has not seen the feared explosion in tenants falling behind with their rent. Landlords have been especially diligent to collect their rent during the recession and have benefitted from an increase in high quality tenants unable, or unwilling, to buy their first home for themselves.”

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