Four in ten landlords have said they will raise rents in the next year, according to a landlord sentiment survey conducted by LSL Property Services plc.
Overall one third of landlords expect they will raise rents above 1 per cent in the next twelve months, with an average estimate of 3.7 per cent, down by 0.9 per cent compared to December 2012. Currently, average rents are rising at an annual rate of 1.5 per cent, according to LSL’s latest Buy-to-Let Index.
Out of those that expect to increase rents, 56 per cent indicated they will do so to cover the cost of inflation. While conversely over half (57 per cent) expect to leave rents unchanged in 2014.
David Newnes, director of LSL Property Services, owners of Your Move and Reeds Rains, comments: “Even with an increase in rental properties available, demand in the private rental sector continues to outstrip supply in many areas, especially in London. In the months ahead, this will enable landlords to push up their rental prices when letting their properties, putting a stop to inflation from eating into their rental income. This is underlined by the fact that covering the cost of inflation is the main reason cited by landlords expecting to increase rents.
“With demand rising, greater emphasis must be on the supply of homes. While the government plans outlined are a welcome move, this is only the start of the long-term solution.”
With current yields at 5.3 per cent, property investment is proving to be a worthwhile alternative to historically low annuity yields and a volatile stock market. Taking into account both capital accumulation and void periods between tenants, total annual returns on an average rental property increased to 8.8 per cent in December, compared to 8.3 per cent in November, reflecting the growth in house prices.
Newnes continues: “Rising rents are delivering strong yields to investors, making a powerful case for the rental market for those in search of a beneficial, long-term investment.
“However buy-to-let investment is not a license to print money, and it requires the same level of research and planning as any other business investment. The success of the investment depends on the property remaining occupied to deliver ongoing rental income. Before taking the plunge it is important to be aware of factors such as the location of the property, which can determine the level of tenant demand. For instance, those nearest to transport hubs will usually be of the highest demand, especially in larger cities like London.”
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