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London lettings market will recover - but it'll take two years at least

A major property platform says London’s rental and sales market may well be on the road to recovery - but that it will not happen for another two years at least.

Home says prices look set to stabilise in the capital within two years due to improving rental yields.

“During London’s recent property boom, house prices soared ahead of rents. Investment fever drove prices up more than 50 per cent in just five years. Meanwhile, rents rose only 10 per cent over the same time period, causing yields to collapse” claims Doug Shephard, a spokesman for the platform.

He says rental yields fundamentally underpin home prices and, following a long period of decline, the tide has turned. Sliding house prices combined with rapidly rising rents is driving yields back up in the capital.

Prices have fallen by around 2.3 per cent over the last year while rents have jumped by 4.3 per cent. 

Moreover, rent hikes are accelerating due to a scarcity of rental accommodation because overall, the number of available properties to rent in Greater London has dropped some 14 per cent.

However, he believes that if ‘unletable properties’ hanging on the market for more than 20 weeks are excluded, the drop is more like 27 per cent.

Shephard says low yields, sliding capital values, higher taxation and regulation have all served to disincentivise investors from buying more properties. He adds that this combination of factors has been encouraging many landlords to leave the rental market altogether, hence the drop in available properties to let, caused by a steep fall in supply of 21 per cent over the last 12 months.

For the time being, the typical gross yield in London of 3.7 per cent remains too low to be attractive, he cautions, and yields in Prime Central London locations are even worse, making buying a home to rent far more lucrative in other UK regions.

Across England and Wales, the average yield in August is 4.7 per cent while in Leeds, for example, the typical yield is a far more attractive 6.0 per cent.

However, Home forecasts that rental yields in London could reach as high as 6.0 per cent by the end of 2020.

“We expect some significant rent hikes over the next two years as tenants compete to secure a home in the capital, and this will accelerate the rise in yields” he claims.

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    All very logical. Once we had a flourishing rental market. It was so good that all manner of politicians and legal people piled in to make it even better and live off the supposed money that was washing around the system. The driving force has been to create a wonderland of security for tenants. Safety experts have not helped either. We have seen useful safety ramped up. That is good of course but we have gone much further to the point were non specialist people can not understand how to comply with it - so more costs in fines plus the expense of carrying out the specialist asks.

    Well, we have gone as far as we can go. The vast amounts of cash have been commandeered by the exchequer. Tenants have so many rights that landlords can not cope with them because of the costs. Everyone concerned is stupefied by the new laws and the worst of all landlords, the councils, are holding sway over the whole market. The councils have a difficult task to do but extending themselves into the whole private letting market is not one of them. We have effective laws to do that.

    The whole letting edifice will collapse as soon as mortgage rates go up regardless of all the "good!" laws.

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