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A ‘landlord’s market’ awaits buy-to-let investors

A ‘landlord’s market’ awaits buy-to-let investors

Category: Mortgages

Updated: 15/10/2010
First Published: 15/10/2010

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 It is now over 6 months old so the content may be out of date.

Buy-to-let investors have been told it is now a 'landlord's market', after rents increased again to reach a record high.

Rents rose to £689 in September, according to LSL Property Services, surpassing those seen at the previous market peak in August 2008, prior to the economic downturn.

Following eight consecutive months of rises, the average UK rent is now 3.1% higher than at the same time last year. However, the average yield remained stable at 4.9% in September, as rising rents were matched by modest house price growth in the past three months.

The resurgence in rents has been driven by a strong performance from London and the South East in 2010. Rents in the capital increased by 1.1% during September to reach a new high of £972, while in the South East, a 0.9% rise was reported for the month.

According to David Brown, commercial director of LSL Property Services, tenant demand has continued to hit new heights because the mortgage market remains tight and many buyers simply cannot get the finance to get a foot on the property ladder. He also said that with potential spending cuts on the horizon, and uncertainty over the direction of the economy, many buyers are choosing to remain in rented accommodation for longer, and might be waiting for house prices to fall.

"As a result, demand for rental accommodation is increasing, and supply is not rising fast enough to match it," he added. "This has turned the buy-to-let market into a landlord's market, and many renters face increasing rental costs while they delay their house purchase."

The rise in rents means that an investor buying property could now expect a total annual return of 9.2%, the equivalent of £15,592 on a typical rental property. Over the past year, the average UK landlord has made a total annnual return of 10.4%, equal to £16,567.

"The private rental sector is no longer in recovery – it has reached the heady heights of its peak two years ago, before the housing downturn took its toll on rents," added Mr Brown.

"And with rents at a record high, it continues to be a lucrative long-term investment despite the slowdown in house price inflation. Mortgage finance is still the main hurdle for investors looking to take advantage of the market. But with lenders like Paragon re-entering the market, there are indications that more affordable products are becoming available for professional landlords - a vital factor in expanding the private rented sector to meet the UK's housing needs."

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