Kate Faulkner's Latest Summary and Analysis of Rental Reports

publication date: Oct 30, 2012
author/source: Kate Faulkner, Property Expert and Author of Which? Property Books

Kate Faulkner's Latest Summary and Analysis of Rental Reports

There are five regular reports on the rental sector, some cover the UK and some that cover just England and Wales. Here is a summary of the report headlines and latest data:-

Report headlines:-

Paragon Mortgagesxx"Tenant demand remains strong" - (England, Wales & Scotland)
Homelet"Rents around UK increase to highest price ever seen" - (England, Wales, Scotland & NI)
Acadametrics/LSL BTL"Strong month for landlords as record rents rise while arrears fall" - (England & Wales)
RICS"Rents expected to continue rising" - (England, Wales, Scotland & NI)
Average Rents    

Rental Indices

Kate Faulkner comments "Headlines of ‘highest rents ever seen' content are misleading for government policy makers, landlords and tenants. The reality is Homelet and Acadametrics/LSL are quoting ‘highest prices' for the HISTORY of their rental indices - which is only a couple of years. In comparison, the RICS, Paragon and Belvoir Lettings, whose indexes go back five or more years and they show rents are ‘recovering' to previous heights achieved back in 2008. 

"In addition, you can't use rental trends as we use property price indices. Most tenants are paying the same rent as they have done for several years, if not more. The rental indices are only picking up the small number of people entering the market or moving from one home to another rental property. In addition, rented new builds can severely skew the figures as they typically attract higher rents."     

Rental Yields

Kate Faulkner comments "Yields are critical to a landlord as they help landlords assess whether their investment in property is performing better or worse than other assets. The yields above however reflect earnings based on current average property prices versus average rents, so doesn't reflect actual yields that landlords would be earning from properties bought in earlier years." 

Capital Growth for Landlords

ARLA xx"The overall average capital asset value of rented houses has risen by 1.9% over the last three months, the second increase in succession, taking the average value of a rented house to its highest ever level"
LSL "If rental property prices maintain the same trend as the last three months, an average investor in England and Wales could expect to make a total annual return of 9.2% per property over the next 12 months - equivalent to £15,191 per property"
SavillsPredict different capital growth depending on the area. Between 2012 and 2016, they estimate prices to fall by -2% in the North through to an increase of 19% in London.

Kate Faulkner comments "Capital growth is quite tough to achieve at the moment in most areas, so it's a bit of a surprise that indices are picking up increases in the asset value of properties. I think this increase should be looked at with caution, as many landlords who bought from 2005 or 2006 will be lucky to have achieved any capital growth since then". 

Demand for Rented Properties

ParagonXX"Demand remains high in Q3"
ARLA"During the last three months, demand in the rented residential property sector has seen a small reduction in terms of the overall proportion of respondents saying that there are more tenants than properties available for them, with the figure falling from 58% to 55%"
Homelet"Demand for rental homes in many areas remains high"
RICS"The tenant demand net balance registered +4, a little down from +15 last time, but still indicative of positive growth. Surveyors once again draw attention to demand coming from would-be buyers who are having to remain in rented accommodation as they struggle to access mortgage finance"
Savills"Rental growth forecasts are underpinned by deposit affordability issues, increases in the urban population of 20-34 year olds and forecasts for growth in disposable incomes."

Kate Faulkner comments "Many people are actively entering into the rental sector as a tenure of choice. Rental accommodation and landlords are not what they used to be 15 years ago. Many properties rented out are actually brand new and with the increased regulation, a legally let property is actually safer to live in than one you buy where there are little legal requirements to make sure it's structurally safe". 


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