As the end of year approaches, we look at the current state of the rental market and its prospects for the months to come. As December also saw the release of tenure data from the 2011 census, we have briefly examined its depiction of the UK housing situation.
As 2012 draws to a close
The latest census data confirmed what this year’s trends have continued to indicate; that the rental market is growing whilst homeownership decreases.
A total of 63.5% of homes are owned, which is a decrease over the last ten years of over 5%. 30.8% are owned outright and 32.7% with a mortgage or loan. Private renting, however, has increased by over 3% to 16.7% (15.3% through landlords or letting agencies and 1.4% through other, non-social accommodation such as that let by a friend, relative or employer). Social renting, however, has decreased, albeit by less than a percentage point; 17.6% of residents of England and Wales rent social accommodation.
Other, more recent research, however, shows that the rental market is not strong everywhere.
Property analytics business Hometrack released research earlier this month, which categorised UK rental markets as ‘mature’, ‘active’ or ‘inactive’ depending on annual turnover and rental supply. The findings showed that the highest performing or mature markets accounted for 29% of UK housing stock, but were concentrated in only 7% of the country. In contrast, inactive markets contain 38% of housing stock but are spread out across 71% of the UK.
Rental demand continues to be high in major metropolitan centres and university towns. London is by far the most saturated market, with both rents and house prices far in excess of anywhere else in the UK. However, with such high capital value (and thus cost) of properties, rental yields tend to be disproportionately ‘average’; according to the ARLA Q3 2012 index, average yields across the whole of London are only 5.2% (against a slightly higher national average of 5.25%).
Buy to let investment continues to be about long-term capital gain in prime areas such as London, whereas higher-yield areas like the North East continue to offer the best short-term rental yields.
Managing Director of ARLA, Ian Potter, cites growing tenant demand as the reason it is “imperative” that the government takes steps to regulate the rental market. Mark Alexander, the founder of Property 118 and a private landlord, suggests that the major property advertisement portals ought to enforce full disclosure of agents’ fees and only advertise for agents who have client money protection insurance policies in place.
Additionally, the Landlord Accreditation Bill is scheduled to have its second reading in Parliament on 1 March 2013. Should the bill pass, all local authorities will have to provide landlord accreditation schemes, of which local private sector landlords will be expected (and perhaps even required) to be members.
With mounting pressure on the government to tighten regulation on both letting agents and landlords, it appears that 2013 may well have extra legislation for the sector in store.
It seems that landlords are in good spirits about the coming months, however. A recent survey published by CHL mortgages, who surveyed 640 buy to let landlord borrowers, saw that 71% of those surveyed were optimistic about the private rental sector in 2013, while 33% plan to expand their buy to let portfolios over the coming year.