Buying beats renting in Aberdeen, but it pays to rent in London

  • Buyers in Aberdeen will be £99,000 better off compared to renters after 7 years
  • Dundee, Glasgow, Cambridge and Edinburgh also compelling to buy vs. rent
  • Buying in London with a 10% deposit takes 18 years to become more cost effective than renting
  • Bournemouth, Huddersfield, Bedford and Swansea also make sense to rent not buy

Aberdeen is the most cost-effective town in Britain for buying property compared to renting. Over a typical seven year period, the average property owner in the Scottish town can expect to be £99,040 better off compared to the equivalent renter, according to research from property website Zoopla.co.uk.

The latest Rent vs. Buy analysis from Zoopla shows that it takes buyers in Aberdeen with a 10% just one year of ownership for buying to become more cost effective than renting. The average property price in Aberdeen is currently £206,060 with average monthly rents at £1,275.

London is currently the most renter-friendly location in Britain. After seven years, a typical London renter would be £82,412 better off than a buyer with a 10% deposit of an equivalent property. It would take 18 years for a London buyer with a 10% deposit to begin to be financially better off compared to the equivalent renter. These calculations are based on a conservative estimate of 4% annual house price growth in the capital.

Bournemouth is the second most renter-friendly town in Britain. With average asking prices of £380,206 and average rents of £1,024 it would take twenty two years for a buyer with a 10% deposit to be better off compared to a renter in an equivalent property. After a seven-year period, a typical renter in Bournemouth would be £30,719 better off than a typical buyer with a 10% deposit.

Lawrence Hall of Zoopla.co.uk said: “Despite taking longer to be better off financially, London remains the holy-grail in terms of property investment. It is much more buyer-friendly outside the capital but with rising average prices and low savings rates, accumulating a deposit has become increasingly difficult. It is important to remember that whilst renters may be better off in the short to medium term in some areas of the country, buyers are making a long-term investment. With most buyers opting for mortgage terms of 25 years, over the long term, buyers are likely to be better off compared to those who choose to rent.”

The Zoopla Rent vs. Buy methodology compares all of the costs associated with buying or renting as well as increases in asset or savings value over time. The analysis forecasts the amount of time it will take for buying to become more cost effective than renting across the largest towns and cities in Britain and compares how much buyers or renters are financially better off after the average tenure of a house.

BEST LOCATIONS FOR BUYING

 

Location

 

Av. Asking Price

 

Av. Monthly Rent

Amount buyers are better off after 7 years (10% deposit)

Aberdeen

£206,060

£1,275

£99,040

Dundee

£96,103

£653

£54,378

Glasgow

£139,841

£722

£40,971

Cambridge

£337,586

£1,334

£28,878

Edinburgh

£224,000

£948

£32,725

Coventry

£191,833

£849

£33,730

Newcastle

£180,516

£812

£33,726

Manchester

£178,069

£781

£29,751

Milton   Keynes

£264,038

£1,066

£25,345

Birmingham

£163,594

£719

£27,171

Source: Zoopla.co.uk (February 2014)

 

BEST LOCATIONS FOR RENTING

Location

 

Av.   Asking Price

 

Av.   Monthly Rent

Amount   renters are

better   off after 7 Years

(10%   deposit)

London

£896,124

£2,619

£82,412

Bournemouth

£380,206

£1,024

£49,082

Huddersfield

£177,119

£561

£7,680

Bedford

£288,598

£959

£7,306

Swansea

£185,373

£631

£204

Source: Zoopla.co.uk (February 2014)

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

LSL logos colour redefine

  • 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

Rent rises slow by half over course of 2013

  • Rents rise 1.5% annually, down from 3.2% rise twelve months ago
  • After a 1% monthly fall, average rent in England and Wales now stands at £745 per month
  • Landlords make average annual return of over £14,000 as house price rises accelerate
  • Tenant finances suffer over festive period, as proportion of all late rent rises to 9.7%

Annual rent rises have halved over the course of 2013, according to the latest Buy-to-Let Index from LSL Property Services plc, which owns the UK’s largest lettings agent network, including national chains Your Move and Reeds Rains.

Average rents across England and Wales have risen 1.5% in the past year, to stand at £745 per month in December.

However, this annual rise is half that of a year ago. By comparison, rents increased by 3.2% in the year to December 2012.

On a monthly basis, rents have seen a seasonal drop. The average rent across England and Wales fell by 1.0% (or approximately £8) between November and December.

Despite a winter slowdown, December witnessed annual growth in lettings activity. The number of new tenancies agreed across England and Wales increased by 7.7% compared to December 2012. However, on a monthly basis there were 12.7% fewer new lettings than in November.

David Newnes, director of LSL Property Services, owners of estate agents Reeds Rains and Your Move, comments: “Very gradually, the clouds are clearing for tenants. Households have suffered from the most painful recession in living memory, but it’s clear we’re now coming out the other side.

“By investing heavily in the supply of more homes to rent landlords have played a pivotal role. Now it remains for the rest of the economy to lift real earnings, and by so doing, lift even more households out of trouble. But prospects look good. Early indications show wage expectations are starting to look up – and general inflation is under control again. If this can take hold, more prosperous tenants will make for a more prosperous private rented sector in 2014.”

Rents by region

Seven out of ten regions saw rents fall on a monthly basis between November and December, in line with a monthly fall across England and Wales as a whole.

The sharpest monthly drop was found in the South East, with rents down 2.0% since November. This was followed by a fall of 1.9% in both London and Wales.

However, the North East and West Midlands experienced rent rises on a monthly basis – up by 1.5% and 1.4% respectively. Rents in the South West also rose slightly on a monthly basis, up by 0.7% between November and December.

On an annual basis, London saw the steepest rent rises, up 4.0% from December 2012 (or £44 in absolute terms). This was followed by a 3.2% annual increase in the South West, and a 2.5% rise in the South East.

However, some regions experienced annual falls. Rents in the East of England fell the most, down by 4.4% (or £33) over the last year. This was followed by a 2.7% annual drop in the West Midlands, and with rents in Yorkshire and the Humber 2.1% lower than in December 2012. Meanwhile, with zero annual change, rents in Wales have returned to the same level as twelve months ago.

David Newnes comments: “The difficulties and frustrations of buying a home are far from uniform across Britain – or even from one town to the next. And the complexities of each local rental market reflect that. However, slower but sustainable annual rent rises are the order of the day in most areas. Local knowledge will be valuable, but improved affordability is good news for tenants and landlords alike.”

Yields and Returns

Gross yields on a typical rental property remained steady at 5.3% in December, consistent with the past three months. However, taking into account capital accumulation and void periods between tenants, total annual returns on an average rental property rose to 8.8% in December. This compares to 8.3% in November – with the increase due to accelerating house price rises. In absolute terms this represents an average return of £14,372, with rental income of £8,189 and capital gain of £6,183.

If rental property prices continue to rise at the same pace as over the last three months, the average buy-to-let investor in England and Wales could expect to make a total annual return of 6.6% over the next 12 months, equivalent to £11,234 per property.

David Newnes comments: “Steadier rent rises, and the usual seasonal dip over the winter shouldn’t put off anyone considering a buy-to-let investment. Returns have picked up considerably over the last six months, underpinned by solid rental yields and boosted by rejuvenated chances of capital appreciation. Rents will keep rising on an annual basis for the foreseeable future, while buy-to-let mortgages are still becoming more available and at more affordable rates. Supply of housing is still seriously restricted in the UK, so much-needed investment looks set to be handsomely rewarded as demand is driven further by an economic pick-up in 2014.”

Tenant Finances

Tenant finances suffered a setback in December, with the total amount of late rent across England and Wales reaching £330 million, up £102 million since November 2013. As a proportion, such tenant arrears now represent 9.7% of all rent, up from 6.6% in November, but still lower on a yearly basis than the 10.1% seen in December 2012.

David Newnes concludes: “While general inflation is back under control, and rents are rising even more slowly than this, household budgets have still been stretched and squeezed from every direction.

“The culprit is wages, which haven’t kept pace with the rising cost of living for years, and the underlying cause is the biggest economic storm for nearly a century. Landlords have invested heavily in new homes to rent, which has helped keep rent rises below inflation. But this can’t be relied on forever. A lack of house building could be the next serious crunch on the horizon, and this fundamental restriction on places to live needs even more attention.”

 

LSL/ACADAMETRICS WALES HOUSE PRICE INDEX

Welsh house sales hit a three and a half year high

  • Prices decrease but this reflects increased activity by first-time buyers
  • Prices fall by £1,750 from the start of the year

 

House Price

Index

Monthly Change %

Annual Change %

£149,769

232.3

-0.2

-1.5

Oliver Blake, Managing Director of Reeds Rains estate agents: “The housing market is recovering quickly across most parts of the UK, but not in Wales. House prices have fallen in nine out of the last twelve months. They fell by £250 in July and are £2,241 lower than twelve months previously.

“Things are starting to look up though. First-time buyer activity has had a major boost, providing some comfort amid the trials and tribulations. Sales in Wales reached a three and a half year high in July, thanks to the influence of first time buyers. The Government’s Funding for Lending and Help to Buy schemes have had a positive impact, and the Welsh housing market is slowly but surely moving forward on the road to recovery.  Increased mortgage supply and stronger competition between lenders, resulting in better pricing, have lifted the market.

“The fall in the average house price has been partly caused by the increase in first time buyer activity. Most of the properties being purchased are at the lower end of the price spectrum which drags down the overall average. The rise in first-time buyer activity will make the market more fluid as sales from second-time buyers and home movers will result in levels rising which will start to push prices back up again.

“On a smaller scale, it is clear, regional house price growth is directly linked with the way each area’s immediate economy operates. Employment rates and job expectations are key factors in determining the level of housing demand in the UK. Prices fell in 13 local authorities and rose in 9, and the region with the largest monthly fall (Merthyr Tydfill) had the second highest unemployment rate in Wales. Demand for properties is high, but many Welsh first time buyers are finding it tough to secure a mortgage. Many are still locked out of the market altogether and are having to stay in rental accommodation, which is putting pressure on their personal finances and making it tough to save for a deposit.

“The Government’s role is crucial in driving the rate of recovery forward, as the Welsh market is in need of a revival in new properties in order to promote a healthy housing market. The good news is the lending environment has warmed up and will continue to unlock the pent up demand from first-time buyers.”

Wriglesworth Paper Summary – 23rd September 2013

Economy: Last night the two trade ministers, Lord Digby and Lord Mervyn Davies warned the Government that Britain’s economic recovery was being weakened by continuing delays in deciding how to develop the country’s airport capacity. They pointed out that more than twenty cities in rapidly growing foreign markets were served by daily flights from other European cities but not London, and they raised concerns that Britain would lose out both in exports and attracting inward investment. There has been much impatience among business chiefs regarding where to build a new runway to reduce the pressure on airports in the South-east. The Government has appointed Sir Howard Davies – former chairman of the FSA – to examine the options, but it is thought he will not publish his full recommendation until the summer of 2015, after the general election, despite growing frustration.  The two peers have highlighted their fears about the gradual decline in Britain’s aviation capacity when compared with their European competitors, and the alarming impact this is having on the UK’s competitiveness. It is though it is preventing British business from flourishing in the current global economy, as Britain’s airport system has not been optimised which is not helping attract inward investment to and from new markets.

Property: Rents are at the highest level for over a decade as house prices rise above the means of would be buyers according new research from Sequence. Evidence shows rents are hitting an 11 year high of £779, that’s a 4% rise during August alone and an 11% year on year increase. The lack of supply have supported house price growth and in London, the problem is even more serious with rents rising up almost double the national average to £1,465 and the average length of tenancy increased from 12 to 18 months as sadly renters are locked out of the sales market altogether. Growing pressure on the rental market has caused a new burst of interest in buy-to-let investing.

Personal Finance: Tax breaks for married couples are so low they are at danger of being perceived as an ‘empty gesture’ , faith leaders and campaigners have claimed. The proposed allowance, worth £150 should be ‘in the thousands’  to cut down the ‘devastating’ trend of family breakdowns, they believe. David Cameron announced that the measure will start in 2015 to acknowledging demands from his MPs. Despite this, a letter from leading Christians, Muslims and Sikhs,, as well as Tory activists adds to the pressure for more action. They believe that marriage is the fundamental building  block of society and that the tax break must have a significant impact on reducing the estimated £46 million a year cost of family breakdown to the taxpayer.

Rents rise once again in April, but pace of increase slows

Rents in April increased to the highest level since November 2012, according to the latest Buy-to-Let Index from LSL Property Services plc, which owns the UK’s largest lettings agent network, including national chains Your Move and Reeds Rains.

The average rent in England and Wales has risen by 0.2% since March, to £736 per month. Continued growth leaves rents in April 3.9% higher than a year ago, almost as fast in March when rents were 4.2% higher year-on-year.

For the first time since November 2011, every region of England and Wales has seen rents rise on an annual basis. The strongest increases were in London, where rents are 7.6% higher than a year ago, followed by annual rises of 5.0% in Wales and 4.1% in the East Midlands. While the South West was the only region to see annual falls in March, this reversed in April, with annual rent rises of 0.5%.

On a monthly basis, eight out of ten regions saw rents rise. The strongest of these increases was in the East Midlands where rents rose 0.6% from the month before. This was followed by the North East and the South West where rents posted a 0.5% gain in both regions. Meanwhile, rents dropped the fastest in Wales, falling 0.3%. The second region to see a monthly fall was the North West, with rents in April 0.2% lower than a month before.

David Newnes, director of LSL Property Services, owners of estate agents Reeds Rains and Your Move, comments: “Rents everywhere are higher than a year ago – at a time when pay has crept up at the slowest rate in years. But some regions are suffering even more than others. Despite a year-on-year increase across the board, the divergence between London and the rest of the country is continuing, even if a little slower than last month. Meanwhile, other regions with traditionally weaker labour markets are suffering the same rent rises. For example, rental rises of 5% in Wales will be keenly felt. Landlords across the UK have increased the stock of rental properties by around 10% since 2008 – but the more fundamental squeeze is still coming from a lack of new building.”

The total annual return on a rental property rose to 5.9% in April. This represents an average return of £9,679 with rental income of £7,807 and a capital gain of £1,872. The average yield on a rental property was 5.3% in April, compared to 5.2% in the same month last year.

If rental property prices maintain the same trend as the last three months, the average investor in England and Wales could expect to make a total annual return of 5.7% per property over the next 12 months – equivalent to £9,496 per property.

David Newnes comments: “Further increases in the rental stock will be dependent on sustained improvements in the availability of finance for landlords. However, new buy-to-let lending dropped in the first quarter, just as purchase prices are starting to move up more steadily. Price rises can be a double-edged sword for renters and landlords, not just owner-occupiers. On the one hand, landlords have already responded to mounting demand, and capital accumulation has made up more of many landlords’ total return than rental income in some areas. However, if property is more expensive to buy then in the long run it will always be more expensive to live in. And that affects everyone. Schemes like Help-to-Buy could be very good in helping first-time buyers but renting continues to prove more flexible than any other part of the housing market.”

The total amount of rent late or unpaid has improved marginally, despite higher rents. Total arrears in April were £282m, compared to £284m in March. This equates to 8.4% of all rent across England and Wales, compared to 8.5% of all rent in March.

David Newnes concludes: “Optimism is seeping in to the housing market – but from the top. For many tenants the monthly ebb and flow is still draining. Compared to inflation and expectations before the crisis, wages are still seriously under water. Hence slower rent rises in April were a life raft for some. But for the tenants still struggling the most, it could be some time before their ship comes in. Landlords are lending a hand, and will need to keep taking up slack until the economy is on a more solid footing and improvements filter through to everyday wage levels.”

Tenants feel the festive pinch despite rental reprieve

Rents in December fell to levels last seen in August 2012 as landlords looked to avoid empty properties, according to the latest Buy-to-Let Index from LSL Property Services plc, which owns the UK’s largest lettings agent network, including national chains Your Move and Reeds Rains.

The average rent in England and Wales fell by 0.9% in December to £734 per month. Despite the seasonal fall, rents in December were 3.2% higher than a year ago, just below the 3.4% annual inflation of November.

Seven regions saw rents decrease in December compared to November. The joint-largest falls were in the East of England and North East, where rents dropped by 1.7%. These were closely followed by London were rents fell 1.5% and the South East with a 1.3% fall. Three regions saw monthly increases; the fastest rise was in the West Midlands, where rents posted 1.3% growth. Next was the South West, with a monthly rise of 0.9%, while rents in Wales crept up by 0.4%.

On an annual basis, rents remain higher than a year ago in eight out of ten regions. London has seen the largest annual rise (6.3%) followed by the South East where rents were 3.9% higher than the previous December. This comes despite lower rents than a year ago in the East Midlands and Wales – with falls of 1.2% and 0.8% respectively.

David Newnes, director of LSL Property Services, owners of estate agents Reeds Rains and Your Move, comments: “Rents may have returned to August levels but it’s a seasonal blip rather than an about-turn in the market. Tenants were in a stronger bargaining position as landlords reduced rents to fill empty properties in the slower winter months, yet as the New Year progresses the underlying weakness in the mortgage market will mean competition will heat up once more. Long-term problems remain for new buyers looking to leave the rental market, and Funding for Lending is proving a double-edged sword. While rates are coming down for those with large deposits, extremely low saving rates are hitting those still trying to pull together a deposit – a problem accentuated by the record low base rate.”

Alongside rises in property values over the year, annual rental inflation means the total yearly return on a rental property grew to 6.2% in December. This represents an average return of £9,986 with rental income of £7,835 and a capital gain of £2,150.

If rental property prices maintain the same trend as the last three months, the average investor in England and Wales could expect to make a total annual return of 4.3% per property over the next 12 months – equivalent to £6,994 per property. The average yield on a rental property was 5.4% in December, compared to 5.3% a year ago.

Newnes comments: “So long as there’s an underlying shortage of mortgage finance at high LTVs and a shortage of property being built, there’ll be people queuing up to rent a home. There’s still a wave of renters who in previous decades would already be homeowners – and despite more products for first-time buyers becoming available, criteria remain strict. Stronger lending at lower LTVs is helping landlords cater for these people, but can’t clear the five year old backlog of demand that will underpin rental yields. Landlords have also seen capital gains coming back into play in several areas, particularly in London where this is a large part of the average landlord’s £26,000 total annual return.”

The total amount of rent late or unpaid grew to the highest level since August 2012, with total arrears of £326m, up from £241m in November. This equates to 10.1% of all rent across England and Wales, while November’s arrears represented 7.4% of all rent.

Newnes concludes: “After two months of improvements, the festive period has taken its toll on tenants’ finances. December always sees a step backwards, and last month was no exception as the total amount of rent owed hit levels not seen since last Christmas. In the absence of real salary increases in 2012, the additional burden of higher rents was met by tenants cutting back on other essentials. But over December, the month’s extra spending has led to many more falling behind again. In the longer term, with rents likely to rise, falling arrears will be tied to the labour market moving forwards, rather than retreating.”