More tenants and better rental yields...

Colourful doors

Last week the government announced some changes to the housing and planning rules, the headlines focused on the relaxation of planning rules, and the announcement that requirements for social housing can now be ‘scrapped’ by local councils (in favour of more profitable developments).

However, we were more interested to hear that it includes a plan invest £200m into the private rented sector as a direct response to the government commissioned report carried out by Sir Adrian Montague.

How this will affect most small-scale landlords remains to be seen, but a boost to the sector of this scale means more new-build properties will be made available to the buy to let investor.

At the moment, larger scale landlords are expected to add to their portfolios over the next quarter. Terraced properties are always popular with landlords, especially at the moment; as these types of properties appeal to young professional couples. But landlords are now looking at other kinds of property too: maisonettes and flats as well as both semi and detached family homes.

The most recent figures released by a leading letting agent suggest there are ten prospective tenants for every property for rent. This has led to an increase in rents: in the south-east and London, tenants are paying over 50% of their take-home pay in rent. Yields are looking good too; estimates put them at 6% on average throughout the UK: this is twice what you’d expect to get from a savings account.

David Newnes, director of LSL Property Services said:

As lending to those without substantial deposits remains depressed, demand for rented accommodation can only go one way – providing further upwards momentum for rents … Fierce competition for properties is enabling landlords to increase rental prices to new highs.

Buy to let mortgage arrears and repossessions are lower than those of the owner-occupier market, which in turn makes the buy to let proposition much more attractive to lenders. Mr Newnes said:

With arrears down, lenders are gaining more confidence in this part of the market and are helping meet the appetite for finance from investors.

The Council of Mortgage Lenders reports a 5% increase in buy to let lending in the second quarter of 2012.

Paul Smee, director general of the Council of Mortgage Lenders said:

Buy-to-let is continuing to show signs of recovery, and growing broadly in line with expectations.

The rental sector has grown strongly over the last decade or so.

This is in stark contrast to the latest figures released by the RLA, with 21.3% of their members* saying they are ‘unable to obtain’ a buy to let mortgage and a further 24.1% saying they found it ‘very difficult’. The report does not say why these landlords found it difficult to obtain a mortgage, and the fact that only 141 of the RLA’s members actually completed the questionnaire leads one to conclude that these figures are not as telling as those released by the Council of Mortgage Lenders.

*141 of the RLA’s members responded to an online questionnaire.

This information should not be interpreted as financial advice. Mortgage and loan rates are subject to change.