Why UK landlords should keep looking North

UK landlords should keep looking North, according to new research, which reveals that the region continues to post the strongest yields for buy-to-let investors.

UK landlords should keep looking North, according to new research, which reveals that the region continues to post the strongest yields for buy-to-let investors.

The yields achieved by property investors stabilised in October across England, according to Your Move’s latest buy-to-let index, following a period of pressure on landlords. The typical yield in every surveyed region remained flat between September and October. This meant the average yield across England and Wales remained at 4.4 per cent.

However, when compared with 12 months ago, properties in every region are generating a smaller return. In October 2016 the England and Wales average was 4.8 per cent..

In the northern regions, though, properties continue to offer above-average returns, with the average property in the North East generating a yield of 5.1 per cent, and the North West (the only other region to post a similar return) a yield of 5 per cent.

At the other end of the scale, London properties delivered the smallest percentage returns to their owners. The typical property in the capital city generated a yield of 3.2 per cent this month.

Rental prices in the East of England, meanwhile, rose faster than anywhere else in the year to October, highlighting how the focus of the rental market continues to shift away from London and the South East. Prices in the East – which contains many rural areas, commuter towns and major cities such as Cambridge and Norwich – increased by 6 per cent in the last year. The average rent now stands at £887 per calendar month.

Other areas posting strong price increases were the North West where rents grew by 3.1 per cent to reach £633 per month – and the East Midlands, which saw 3.2 per cent year-on-year growth to reach an average of £648. London was one of two areas to see prices fall year-on-year, the other being the North East. In both areas prices have fallen by 1 per cen in the last 12 months.

As a result, the North East remains the cheapest place to rent a property, with
the average house being let for £535.

Martyn Alderton, National Lettings Director at Your Move and Reeds Rains comments: “As we approach winter, the heat has been taken out of the rental market and price growth has slowed. While prices in most areas have continued to rise, it has been at a slower pace than we had been used to in recent years.”

 

North West home to fastest rising rents in the UK

30th October 2017

Landlords are likely to look north in the coming year, as North West England is now home to the fastest rising rents in the UK.

On a yearly basis, rents increased in the North West by 3.6 per cent to reach an average of £633 in September 2017, according to new figures from Your Move. Close behind was the East Midlands where prices have grown to £646 per calendar month in September, a rise of 3.4 per cent compared to last year. The East of England rounded off the top three regions with prices having increased by 2.9 per cent in the 12 months to September to £880 per month.

By contrast, prices in the South West have fallen by 2.2 per cent and in the North East they have dropped by 0.3 per cent. These were the only two regions to post a year-on-year fall. As of September, the average price in the South West was £669 while in the North East it was £536, the cheapest region in the UK.

London rents remain the highest in the country, with an average of £1,280 recorded during September. However, this headline figure continues to mask vast differences across the capital: the most affordable rents are on the boundary of Zone 4 and 5, where the price per calendar month is £1,084.

On a seasonally adjusted basis, the average rent was £843 in September, higher than the £841 recorded last month and 3.2 per cent up on the same point in 2016.

Martyn Alderton, National Lettings Director for letting agents Your Move and Reeds Rain, comments: “Once again the strongest rent growth was found in the areas away from London and the South East. As activity in the capital slows, prices and activity have risen in the north.”

Indeed, yield levels have started to stabilise across surveyed areas after being squeezed at the start of the year. Across all surveyed areas, the average yield in England and Wales remained at 4.4 per cent for a sixth successive month. But despite this stability, yields are still lower than a year ago. In September 2016, the average return was 4.8 per cent. The South East was the only region to see returns fall month-on-month, with the average landlord here getting a return of 3.3 per cent in September versus 3.4 per cent a month ago. All other regions offered the same yields as in August but are down compared to last year.

Properties in northern areas continue to offer better returns than other areas. This month the average property in the North East had a yield of 5.1 per cent, higher than any other area in the country. The North West was the only other region to post a similar return, it had a yield rate of 5 per cent this month.

With the costs landlords face now rising in the UK, following a range of government measures, it is increasingly vital for buy-to-let investors to focus on markets where yields are highest to maximise their ROI. For more, see our guide to beating the buy-to-let tax changes.

 

UK rents see first rise in three months

9th August 2017

Landlords losing confidence in the buy-to-let sector after the UK’s tax changes will be given a boost this summer, as rents rise for the first time in three months.

The average rental rate in the UK climbed by an average of 1.1 per cent during July, new data from HomeLet reveals. The average rent agreed on a new tenancy signed during July was £925, up from £915 in the same month of 2016.

July’s 1.1 per cent annual increase compares to declines of 0.3 per cent and 0.2 per cent in May and June respectively, the first time rents had fallen in the UK since 2009.

HomeLet’s data suggests landlords now feel more confident than in the Spring about seeking higher rents on their properties – but also that they remain very aware of tenants’ ability, or inability, to pay. The July data may also reflect a decrease in the number of homes coming onto the rental market, with research from organisations such as the Association of Residential Letting Agents suggesting fewer landlords have acquired new rental properties in recent months. (A similar effect has been seen in the housing market, where weaker prices stabilised in July as fewer properties were put up for sale.)

“It’s often been the case in recent times that rents have strengthened over the summer period. It’s a time when renters contemplate moving, demand increases, tenancy terms are set, and when the anniversary of the tenancy often occurs. This year, that ‘seasonal’ factor brings some relief for landlords, who’ve endured a gradual erosion in rent prices over many months,” says HomeLet’s Chief Executive Officer, Martin Totty.

Indeed, landlords have been losing confidence in their ability to rely on steady rental yields this year, according to recent figures from the National Landlords Association. The figures show that the proportion of landlords who are optimistic about their ability to rely on a steady rental yield has fallen 15 per cent in the past two years – down from 64 per cent in Q2 2015 to just under half (49 per cent) in Q2 2017.

However, that perception contrasts with actual rental yields achieved across the UK, which have remained fairly stable. Over the past few years, the average yield has fluctuated around the 6 per cent mark, says the NLA.

The Greater London rental property market continues to act as a brake on the UK as a whole, with rental inflation in the capital now running at -0.6 per cent a year, according to HomeLet. July was the fourth successive month in which London saw rents fall, and while the pace of decline is now slowing – July’s figure compares to a 2.9 per cent drop in June – the capital’s rental market still looks transformed compared to this time last year, when rents were rising at a rate of 6.6 per cent.

Outside of London, rental price inflation is significantly stronger, with nine out of 11 regions beyond the capital seeing higher rents last month. Rents rose fastest in Northern Ireland (up 5.7 per cent compared to July 2016) and Scotland (3.6 per cent), with only the South East (-0.9 per cent) and the North East (-1.7 per cent) recording declines. As a result, rental price inflation across the UK, but excluding London, is now running at a much faster rate of 1.6 per cent.

“At the same stage last year, the South East was the main driver of UK average rents. This time around it’s regions throughout the country leading the strengthening in rents. If we exclude the London region, the average UK rent for a private rental property has hit a new high of £769 a month, up 1.6 per cent on this time last year,” adds Totty.

Indeed, regionally, landlords in the East Midlands currently generate the highest rental yields at 6.9 per cent, NLA data confirms. By contrast, landlords in outer London generate the lowest yields at 5 per cent.

“Predicting where the market heads from here is very difficult given the number of competing forces impacting the sector, either already being felt or still being contemplated,” concludes Totty.

“Whether the market has now found some equilibrium remains to be seen, but landlords at least will be grateful for even some short respite.”

 

UK landlords try to hold back rent hikes

24th April 2017

UK landlords are trying to hold back hikes in rent, following the introduction of new tax rules that put the squeeze on their budgets.

Since 6th April 2017, landlords must pay tax on part of their mortgage costs, as the ability to offset finance interest against rental income is restricted. The plans will effect higher rate taxpayers, as well as almost 500,000 landlords who will be pushed into this tax band as the changes artificially inflate their rental income. It is estimated that two thirds of landlords plan to raise rents to cope with these changes.

To offset the measures and remain profitable, landlords would need to raise rents by at least 20 per cent. With average UK rents at £895 – the equivalent to a £179 increase per month across the market as a whole.

However, new data from HomeLet shows that rental price inflation in the UK remained modest during March. The HomeLet Rental Index reveals that the rate at which rents are rising increased by a small amount for the second successive month, following seven months of falls, and remains below the general rate of inflation.

Rents in the UK rose by an average of 1.1 per cent in March, compared to the same month of last year, HomeLet’s data shows, up from an average increase of 0.8 per cent in February. Prior to that, rental price inflation had fallen in every month since last June. By contrast, general inflation now stands at 2.3 per cent.

March’s rental price inflation means that tenants signing up to a new tenancy last month agreed to pay an average rent of £904 a month, or £751 stripping out the Greater London market. In London itself, the average rent now stands at £1,546.

Commenting on the research, HomeLet’s Chief Executive Officer, Martin Totty says: “In the current housing market, where demand for homes continues to outstrip supply and house prices are out of reach for many buyers, the long-term trend in the private rental sector is likely to be for rental price inflation to continue; however, the HomeLet Rental Index continues to reflect landlords’ focus on offering tenants affordable rents, with rents now increasing at a rate significantly below the general rate of inflation in the UK economy.”

Research by Platinum Property Partners found that more than three in four (79 per cent) tenants could not afford the average rent rise needed for most landlords to remain profitable as a result of upcoming changes to the way mortgage interest payments are taxed. The company suggests that living in HMOs could be a way to avoid facing higher costs, as living with multiple tenants often results in lower rents. According to the firm, renters in HMOs would only face a potential average increase of £19 each – which more than three quarters (76 per cent) could afford.

They may also provide the answer for buy-to-let investors too, as they seek to maximise returns to compensate for the higher outgoings.

Steve Bolton, Founder and Chairman of Platinum Property Partners (PPP) comments: “Our research suggests many HMO tenants could not afford the average rent rise most landlords would be forced to make to remain profitable and would have to move out. This leaves landlords having to choose between potentially going out of business or losing a tenant. Fortunately, HMO properties provide relief for both tenants and landlords. HMO tenants enjoy much lower rents, enabling them to save for their long-term goals. HMOs also provide landlords with up to four times more rental income than a single-tenancy property, leaving them much better positioned to absorb rising costs.”

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