FOUR IN TEN LANDLORDS EXPECT TO RAISE RENTS OVER NEXT 12 MONTHS

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  • 42% of landlords expect to increase rents in the next twelve months
  •              One third expect to increase rents by over 1% in 2014
  •              Average estimate of 3.7%, down by 0.9% compared to December 2012

Four in ten landlords anticipate they will raise rents in the next year, according to a landlord sentiment survey conducted by LSL Property Services plc, which owns the UK’s largest lettings agent network, including national chains Your Move and Reeds Rains.

Overall one third of landlords expect they will raise rents above 1% in the next twelve months, with an average estimate of 3.7%, down by 0.9% compared to December 2012. Currently, average rents are rising at an annual rate of 1.5%, according to LSL’s latest Buy-to-Let Index.

Out of those that expect to increase rents, 56% indicated they will do so to cover the cost of inflation. While conversely over half (57%) expect to leave rents unchanged in 2014.

David Newnes, director of LSL Property Services, owners of Your Move and Reeds Rains, comments: “Even with an increase in rental properties available, demand in the private rental sector continues to outstrip supply in many areas, especially in London. In the months ahead, this will enable landlords to push up their rental prices when letting their properties, putting a stop to inflation from eating into their rental income. This is underlined by the fact that covering the cost of inflation is the main reason cited by landlords expecting to increase rents.

“With demand rising, greater emphasis must be on the supply of homes. While the government plans outlined are a welcome move, this is only the start of the long-term solution.”

With current yields at 5.3%, property investment is proving to be a worthwhile alternative to historically low annuity yields and a volatile stock market. Taking into account both capital accumulation and void periods between tenants, total annual returns on an average rental property increased to 8.8% in December, compared to 8.3% in November, reflecting the growth in house prices.

David Newnes, director of LSL Property Services, owners of Reeds Rains and Your Move, comments: “Rising rents are delivering strong yields to investors, making a powerful case for the rental market for those in search of a beneficial, long-term investment.

“However buy-to-let investment is not a license to print money, and it requires the same level of research and planning as any other business investment. The success of the investment depends on the property remaining occupied to deliver ongoing rental income. Before taking the plunge it is important to be aware of factors such as the location of the property, which can determine the level of tenant demand. For instance, those nearest to transport hubs will usually be of the highest demand, especially in larger cities like London.”

FALLING VOID PERIODS

December experienced annual growth in lettings activity, with new tenancies agreed across England and Wales up by 7.7% compared to December 2012. As a result, void periods in private residential property in the UK have fallen, helped by this solid tenant demand. As the UK lettings market powers ahead in 2014, landlords shall continue to benefit from falling void periods, while tenants will face intense competition for the best properties.

David Newnes, concludes: “While void periods are falling, the private rented sector gives tenants flexibility, so as tenants’ circumstances change; there are still occasions when a property might be empty.  Of course, it is in every landlord’s business interest to maintain good, long lasting tenancies and avoid voids. At a time when demand far outstrips supply, it is imperative that empty properties are filled quickly, following any necessary maintenance and improvements. Landlords can minimise void periods by talking openly with their tenants about their future plans – in order to prepare for when the property might be empty. Overall there’s an air of optimism surrounding the rental market now that inflation is firmly back on track as wage expectations start to improve. A rise in affluent tenants will help further boost the success of the private rental sector this year.”lsl-property-services-logo

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Paper Summary: Wednesday 13th November

Personal Finance

8.8m people would only be able to last a week on their savings according to research from HSBC. A third of people have less than £250 in accessible savings to act as a financial safety net should they lose their main source of income.

Economics

George Osborne said Britain is on the path to prosperity and is enjoying a recovery many countries would crave in his speech at yesterday’s Festival of Business. An unexpected fall in inflation to 2.2% appears to reinforce the chancellor’s words. However, the business editor counsels against getting too carried away by that, pointing out that the biggest contributing factor was the impact of higher university fees on CPI last year.

Property

Mortgage lending to home buyers has hit its highest level since the recession according to CML figures. £27bn of loans were approved in Q3 – the highest level since 2007. ONS figures revealed house prices continue to rise, especially in the capital where prices rose 9.3% in September alone. Peter Rollings of Marsh and Parsons said “The London market is singing from a different sheet” and pointed out that half the homes in prime London are now worth £1m or above.

Recruitment

Young people are experiencing a “jobless recovery” according to research from IPPR as the youth unemployment rate is now 3.74 times the adult rate. More than 950,000 young people are unemployed and almost a third have been looking for a job for more than a year. The research found evidence of this growing trend well before the recession started suggesting the problems are systemic as well as economic.

News Headlines: Sunday 11th August

Economic

Britain’s economy is outpacing all its main competitors including America, according to combined data from Markit and JP Morgan. Britain’s economy is growing at an annualised rate of 2.4%, compared to 1.7% annual growth in the USA and an on-going recession in the Eurozone. Many economists are now upgrading their forecasts for this year and next. “This recovery is broad, and the broader it is, the more sustainable it is”, says Rob Dobson, senior economist at Markit. (Sunday Times p.2)

Personal Finance / Property

With official interest rates at record lows, and now set to remain so until an improving economy brings the unemployment below 7%, savers are bracing themselves for what could be a three more years of a 0.5% base rate. If interest rates did rise in 2016, in total that would mean a seven year wait for higher returns. Sunday Times Money has a full feature on what impact below-inflation returns could mean for savers, focusing on the move into property investments, and the rise of Buy-to-Let borrowing to leverage these deals. Buy-to-Let house purchases are expected to hit 85,000 this year and 100,000 in 2014, fuelled by strong rental yields, currently averaging 5.3% according to the LSL Buy-to-Let Index.

David Whittaker of Mortgages for Business said, “In the last couple of days we have seen a surge in calls for savers looking for advice on getting into the buy-to-let market. Clients want a better return ion savings than they would get by sticking their savings in the bank.” (Sunday Times Money p.1)

Recruitment

Unemployment could fall to a new low in this week’s jobless figures. According to IHS Global Insight the official figures on Wednesday will show a fall in unemployment of 38,000 to a 25 month low of 2.48 million. They also expect a rise in employment levels – predicting 52,000 more people in work to take the total number of people employed in the UK to 29.8 million. (Sunday Express Financial p.1) Tara Ricks, managing director of Randstad Financial and Professional, says “the jobs market is humming” and that this will help “stoke the fires of the economy”. In his column, the Express’s Geoff Ho is more cautiously optimistic saying we should still “keep the champagne on ice” for the time being, highlighting youth unemployment, which is still stubbornly high.

News Headlines for Tuesday, 8th May

Property:
The Financial Times’ Vanessa Houlder says a rebound in the residential property market has run out of steam, with house prices edging down last month after the end of the stamp duty concession for first time buyers.  That’s based on a survey from RICS.

Economics:
Economists have predicted that the MPC decision on further quantitative easing – due this week – will be “an extremely tight call.”  Despite some sign from business that confidence is returning, the Daily Mail says inflation looks set to remain above the Bank of England’s 2% target and growth has yet to show real progress.  Experts surveyed by the paper suggest the Bank may hold off from further QE or opt to compromise and inject another £25bn into the economy.

Personal Finance: 
The Daily Telegraph’s Katherine Rushton reports the Labour party has criticised plans by money lending firm Wonga to offer business loans at annual interest rates of up to 180%.  Shadow Business Secretary Chuka Umunna called the proposal “a damning indictment” of the British banking system and Stella Creasy MP, who has been leading a campaign against so-called “payday loans” added that the government’s Project Merlin, which was created to ease credit facilities by forcing banks to lend more freely, had not delivered on its aims and left companies “desperate to stay afloat.”