Rents dipped in January as more investors piled into the market – against warnings that they could actually lose money on their new investments.
David Brown, estate agency managing director of LSL, parent company of Reeds Rains and Your Move, said that over the next 12 months, a property investor could expect to make a total annual loss of £61 per new rental property.
He calculates that the average £8,186 in rent could be cancelled out by a capital loss of £8,247 if house price falls continue at their current rate.
However, the company says that investors are entering the market at a time of strong demand and an under-supply of properties. They are also tempted by lower house prices and a slight increase in mortgage products.
Annual average yield currently stands at 3.7%.
In January, LSL says rents fell 0.3% to a national average of £682 per month as increasing investment pushed up supply. It was the second successive month that rents fell back.
Brown said: “The recent loosening in the buy-to-let mortgage market has boosted the supply of rental homes on the market, a crucial factor in the temporary drop in rents.
“In the last quarter of 2010, the number of buy-to-let loans leapt by 7% according to the Council of Mortgage Lenders.
“With more buy-to-let mortgage products coming on to the market, there are signs that this trend is continuing, allowing a growing number of professional landlords to get on to the market – or broaden their portfolios.”
Rents in some areas rose slightly, but there were falls of over 2% in the east of England and Wales.
Tenant finances were in slightly better shape than in December, but high arrears remains a concern for landlords, with 11% of all UK rent unpaid or late by the end of January, a drop from 11.7% in the previous month.
Unpaid rent totalled £258m across the UK in January, down from £276m in December.
Brown said: “In a market where properties aren’t jumping up in value, rental income is even more crucial to investors’ returns – and pays the mortgage bill each month. It’s vital that landlords act swiftly to head-off any potential tenant issues at the point before they become a recurring nightmare.”
Commenting on the LSL report, David Whittaker, managing director of buy-to-let lender Mortgages For Business, said: “Falling rents are a temporary blip in the buy-to-let market and won’t be a continuing trend.
“Demand from tenants will grow this year as the housing crisis tightens its grip on the UK. Rents will rise again and will continue to rise as more and more people turn to the private rental sector over the next 12 months.
“It’s commendable that house builders like Taylor Wimpey are introducing 95% mortgages for first-time buyers, but deals like this won’t be enough to stimulate to market, particularly as inflation is causing the value of would-be buyers’ deposit savings to diminish every day.
“Investors will continue to build their portfolios but, as long as the mortgage market continues to freeze out buyers, we’re not going to see a repeat of supply outstripping demand in the rental market any time soon.”
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Comments
It just goes to show a corporate sloth like this bunch do not have the ability to move with market forces. Rents up 15% plus in London. Its happening.
Yes LandlordUnderPressure, he's also missed stamp duty to buy, estate agent selling fee on the way out, estate agent fees to rent it out, insurance
The housing benefit cuts are going to add further pressure on rents as well as rising unemployment, wage freezes, high inflation and rising interest rates.
With house prices some way to fall capital gains will be non existent for about a decade or more just like what happened in Japan.
£61?!! And the rest. He doesn't appear to have allowed for gas/electric checks, contract costs, advertising, wear and tear, vacant periods, rising interest rates etc etc
Just what are you then?
"Demand from tenants will grow this year as the housing crisis tightens its grip on the UK. Rents will rise again and will continue to rise as more and more people turn to the private rental sector over the next 12 months."
What the hell does that mean? The only housing crisis in the uk is the fact that values are bloated by years of excessive lending and haven't been allowed to fall to market-clearing level. The only way prices can stay as high as they are is by artificially restricting the supply of properties for sale - and the only way to keep properties off the sales market is to let them out!
The reason rents are falling has got nothing to do with investors 'piling into the market' (7% of bugger all is bugger all!) - and everything to do with sellers who can't get the price they want for their property letting it out instead!
We're back to 2008 - falling house prices and reluctant landlords flooding the rental market. Try as you might, there's no positive spin you can put on the present day housing market. Either house prices collapse or rents collapse dragging house prices with them.
Very helpful comments Mr Brown just to get column inches for LSL. That’s your view and should be reported as such only. Typical of the organisation LSL has slid down to.