Rents are rising at the fastest rate since 2017, pushing the average yield on residential property to 4.5 per cent, its highest in two years.
In London, yields are at their highest since 2015.
It says the value of the private rented sector increased by £6 billion in the last year following weakening house prices and subdued growth in the number of rental properties.
The supply of rental homes is expanding by just 0.2 per cent a year, with 5.4m properties currently in the sector.
Those are the short term statistics from the latest snapshot of the private rental sector from intermediaries’ service Kent Reliance.
However it says the growth of the sector is subdued on the back of government intervention and the economic impact of Brexit uncertainty.
The value of the £1.3 trillion private rental sector grew by £6 billion in the last year, as the expansion of supply dwindled and property prices weakened in several parts of the country.
The value of the average rental property has risen by 0.3 per cent in the last year, “with Brexit uncertainty gripping the wider housing market”.
Average property prices fell in four regions. The biggest annual decline occurred in London, which took a disproportionate toll on the overall value of the sector.
Meanwhile, Kent Reliance says reforms to the tax treatment of mortgage interest and tighter lending rules, combined with continued regulatory changes, have hit landlords’ confidence, undermining the supply of properties within the sector.
According to a survey of 827 landlords run in association with BVA BDRC, landlord confidence has dropped to the second-lowest level on record.
Just 37 per cent of landlords hold a positive outlook for their portfolio, compared to 41 per cent a year ago.
Reduced confidence is limiting new investment into the sector, and therefore the supply of rental properties, Kent Reliance says.
The number of homes is estimated to have grown by 11,000 properties per year, a rise of 0.2 per cent with 5.4m properties currently in the sector.
Andy Golding, chief executive of OneSavings Bank - which trades under the Kent Reliance for Intermediaries and InterBay Commercial brands in buy to let - comments: “Landlords have rolled with the punches as best they can, but there is no escaping that growth is subdued in the private rented sector following four years of government intervention. Brexit uncertainty has only compounded this issue, having the obvious knock-on-effect on landlords’ confidence.
“The positive news is that for those landlords looking to expand their portfolios, underlying market conditions seem to be changing. Yields are climbing as rents rise faster than house prices, providing further opportunities for committed investors.
“Professional landlords haven’t stood idle either. Holding property in a limited company structure is increasingly popular for landlords adding to their portfolio, while many are also remortgaging to fix outgoings by taking advantage of historically low rates. However, it’s clear the private rented sector now holds less appeal for amateurs.
“Without some policy stability, there is the tangible risk that the supply of homes will contract, and rents will become less affordable. Rents are already rising, and will continue to do so as landlords come to terms with higher set up and running costs, on top of larger tax bills. Neither outcome suits tenants, nor helps with the ultimate issue of housing affordability.”