Rents are starting to see some real upward movement in 2015 after pretty much 5-6 years of low growth, property expert Kate Faulkner says.
This is being driven partly by demand being higher than supply, but mostly because wages are now rising above 
inflation and this is helping tenants to pay more, Faulkner explains.
“From a landlord perspective, this is really good news as rents have not been rising that fast and this will help fund maintenance. The Homelet index continues to show that newly advertised rental inflation is higher than rental growth to existing tenants.
“Supply and demand definitely influences rents and at a regional level, where there is plenty of rental stock, such as in Wales, the North West and parts of East of England, rents aren’t rising, while London and the South West are seeing rises. They are not though the ‘raw deal’ suggested by the National Housing Federation. Their recent comparison compares an individual landlord who has to pay high prices with corporate landlords who build from scratch, so it is very much apples versus pears. In comparison, rents in the social sector – which are controlled – have risen twice as fast as private rents in the UK, and rents are around a third of wages, just like they are in the UK according to most affordability reports,” Faulkner adds.
Analysis and outlook for capital growth & yields for landlords
The April 2015 report from Acadata/LSL states that “The gross rental yield on a typical rental property in England and Wales stands at 5.1 per cent as of April 2015; stable compared to 5.1 per cent in March this year and 5.1 per cent in April 2014. However, total returns have dipped on cooler property price rises. Taking into account changes in property prices and adjusting for void periods between tenants (but before costs such as mortgage repayments or maintenance) total annual returns on an average rental property now stand at 8.9% over the twelve months to April. This compares to 10.2 per cent over the twelve months to March an d 11.5 per cent a year ago. In absolute terms this means the average landlord in England and Wales has seen a return, before deductions such as mortgage payments and maintenance, of £15,503 over the last twelve months. Within this figure rental income makes up £8,247 while the average capital gain amounts to £7,256.”
According to the data from the Royal Institution of Chartered Surveyors (RICS) for May 2015, “On the back of tightening market conditions, contributors anticipate rents will rise across all parts of the UK over the next three months, with expectations most elevated in the East Midlands and the South West (although all areas returned solid readings). Over the next twelve months, rents are projected (by survey respondents) to increase by just under 3% on average at the nationwide level. Meanwhile, credit conditions appear to have eased further with the composite measure of ‘perceived’ LTV ratios edging up slightly (now standing a shade over 79%), a trend that has persisted in each of the past three months.”
Faulkner comments:
“ Although property prices are not rising everywhere and prices in most areas are lower than they were in 2007/ 0 8, where they are rising, investors have a dilemma. On the one hand they may want more stock to buy, but on the other trying to get a ‘bargain’ and a property deal to stack up income wise isn’t easy, which is why yields are falling. Property price growth however is helping to increase overall returns, reminding us that buy to let investment is mostly a capital growth one, not an income generating one. ”
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