UK landlords can expect a good 2012 as tenant demand rises

Landlord Expert
By Landlord Expert January 23, 2012 12:59

According to tenant referencing specialists, Landlord Assist, many investors are returning to the buy-to-let marketplace to expand portfolios, as they capitalise on growing tenant demand and increasing availability of lending.

 

It also says that landlords are obtaining mortgages at a competitive rate and in most cases, buying at a significant discount to the 2007 peak.

 

As a result, landlords can now enjoy a positive income stream, potential capital growth and see inflation erode the value of their mortgage debt over a period of time.

 

Graham Kinnear, managing director at Landlord Assist, said: 'There are few tangible investments at present which can offer growth, income and a positive hedge against inflation quite like the buy-to-let market.

'Investors have taken advantage of weak prices and strong rental returns over the past year, and with the base rate unlikely to increase anytime soon, the good news for landlords is that they can enjoy the favourable conditions for some time yet.'

But Landlord Assist's positive outlook takes one crucial thing for granted - house prices rising or remaining steady. If substantial falls in property prices arrived instead, new buy-to-let landlords or those expanding their portfolios could see thousands wiped off their investment over the short term.

According to buy-to-let lender, Paragon Group, landlords are expecting tenant demand to increase further this year, with more than half (56 per cent) stating that they expect tenant demand to either grow or boom, compared to 45 per cent who were asked the same question at the end of 2010.


Landlord Assist also expects demand for private rented properties to remain strong for the foreseeable future. 

 

This comes as more potential homebuyers are forced into rental properties, because of difficulties raising the capital for a deposit to buy their own home and a lack of mortgage availability.

 

As a result, more tenants are renting for longer periods than they envisaged, providing increased security to landlords.

 

Nigel Terrington, chief executive of Paragon Group, said: 'It is no surprise that landlords are expecting a healthy level of tenant demand in the New Year, based on the levels of demand we have seen steadily increase throughout the past 12 months.

 

'With the success of 2011 to build on, I believe the private rented sector will continue to perform and provide a valuable tenure choice for even more people in 2012.'

 

Statistics from LSL Property Services shows rental prices have increased by almost £50 a month since 2008 – and this, along with house prices facing pressure in the current market, is leading to increasing yield opportunities for investors.

 

Yearly, rental prices have increased in all but two regions. In London for example, rents have risen by 5.6 per cent.


The average total annual return per property in December 2011 was 3.7 per cent, LSL Property Services added, compared to 2.7 per cent in November. In cash terms, this is an average of £6,107 – equivalent to £7,611 in rent with a capital loss of £1,504.

 

If property prices maintain the same trend as the last three months, an investor could expect to make a total annual return of 4.8 per cent over the next 12 months – equivalent to £7,841 per property. 

 

These returns are not much better than those possible from cash, with instant access savings offering around 3 per cent and five-year fixed rates offering near to five per cent, however, while it carries extra risk property does also offer the prospect of outperformance.

 

Official figures from the Department for Communities and Local Government (DCLG) House Price Index, showed that property values fell annually by 0.3 per cent last year – so are fairly stable.

 

According to Nationwide and Halifax house price indexes, house values are still down drastically from pre-credit crisis levels. The average property price touched £200,000 in August 2007. 

 

However, in the last year, house prices have stabilised slightly, which has meant annual returns have been boosted.

Landlord Expert
By Landlord Expert January 23, 2012 12:59

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