Rents will rise slower than inflation - Buy To Let - News - Moneyfacts


Rents will rise slower than inflation

Rents will rise slower than inflation

Category: Buy To Let

Updated: 02/10/2014
First Published: 02/10/2014

This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

In welcome news for renters, research has found that rents will rise by just 1.8% over the next year, which is below the Bank of England's target inflation rate of 2%.

The figures were revealed in the latest Buy-to-Let Index from Your Move and Reeds Rains, an index which surveys landlord sentiment across the industry. Landlords themselves are predicting this below-inflation rent rise, which represents a slowdown in the current pace of rental growth – as it stands, average rents are rising at an annual rate of 2.4%.

According to the figures, this could simply be because the majority of landlords are planning on keeping prices as they are. Just 43% of landlords are planning to increase rents in the next 12 months, with covering the cost of inflation (57%) and paying for maintenance work (31%) being the key reasons for doing so.

This hasn't put landlords off expanding, however. Currently 22% of those surveyed plan to expand their portfolio in the foreseeable future, up from the 18% who planned to do so in January, while 18% of landlords have already added to their portfolio of rental properties in the last year. This trend had been led by a clear increase in tenant demand – something which can only be beneficial for landlords.

More tenants seeking rental accommodation means fewer void periods, which in turn leads to a more stable income and, ideally, higher profits. It's therefore encouraging to see that 41% of landlords reported increased demand in the past six months, while 63% expected demand to increase further, up from 56% in January. Just 5% of landlords anticipate a fall in tenant demand, and by all accounts – particularly given the difficulty a lot of renters are having in making the jump to homeownership – this isn't likely to happen any time soon.

"Demand for rented accommodation is climbing, and there's little sign of this stopping," said David Newnes of Your Move and Reeds Rains. "While Help to Buy and higher LTV lending are enabling first-time buyer activity, strong house price growth this year has lifted homeownership a few steps out of reach for many, and the private rented sector remains the safety net supporting those still saving for a deposit.

"This demand is also powering more supply. Secure house prices and spirited tenant demand are encouraging budding buy-to-let investors and existing landlords to add to the number of available homes to let. The benefits of more investment will be felt in tenants' back pockets at the end of the month, as the strain of rent rises eases further."

The buy-to-let (BTL) business is definitely booming, and it's great news for all concerned. It's a particularly good time for investors, and this can be seen in the surge of confidence among them: one fifth of landlords (21%) believe that now is a good time to invest in buy-to-let, with 55% citing tenant demand as a key motivator, closely followed by attractive property prices (54%) and better capital returns when compared with other forms of investment (45%).

However, it looks like there could be one key challenge facing a lot of landlords these days – and it's all to do with mortgage finance.

For 39% of landlords surveyed, buy-to-let mortgage payments have become more expensive in the past 12 months. A further 42% who had tried to raise mortgage finance in the last year found it more difficult compared with the year previously, up from 35% in January.

The availability of cheap finance is still a key reason to invest for one in ten landlords, but this is a clear drop from the 17% who said the same in January.

This would seem to indicate that the effects of tighter regulation are still being felt, as although the Mortgage Market Review was primarily concerned with the residential sector, it's bound to have a ripple effect in BTL.

"The mortgage market was jolted back into renewed vitality this year, but the more recent period of recalibration has shifted lending conditions," added David Newnes. "Securing mortgage finance is not a conundrum restricted to first-time buyers, but is a considerable hurdle for landlords, too.

"The Government and Bank of England need to ensure that any further regulatory changes do not lift lending out of reach for good applicants. Balancing the asymmetry between supply and demand depends on the growing number of buy-to-let investors being able to acquire affordable mortgages, in order to broaden the pool of rental accommodation on offer and keep rent rises at sustainable levels."

Nonetheless, there are still great BTL mortgage deals to be found, and it can't be denied that the future's looking bright for the industry – which means it could be a great time for landlords to get in on the action or expand their portfolios. The sustainability of the market, helped by increasing tenant demand and the potential for attractive yields, is likely to see this BTL boom continue, so make sure you consider your options and see if BTL could work for you.

What next?

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Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.

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