Belvoir Letting Experts reflect on the performance of the rental market in the past year and make their predictions for the year ahead…
Dorian Gonsalves, MD of Belvoir Lettings says: “I predict that rents will rise moderately, remaining more or less in line with inflation and salary increases. Rental fluctuation is likely to be very regional with some areas such as the South East likely to see a higher increase as rental prices force people out of London into the Home Counties.
“With regard to other areas of the UK I think rents will be relatively stable and increases are likely to be very modest. Landlords should be realistic and it is worth noting that many areas have still not recovered to the level of rents that were being achieved in 2008.
“I predict that increased rents and stable or decreasing house prices will result in increased rental yields in 2012. However, this is clearly very dependent on the outcome of the Eurozone crisis and its impact on credit and borrowing. The current crisis is making consumers nervous, which will affect both the BTL and mortgage market.
“A recent phenomenon noted by Belvoir agents across the country is that of ‘double renting’ – where homeowners who are struggling to sell are now letting out their existing home to provide an on-going income stream, and then moving to another lower cost rental property. Double renting helps to avoid the stamp duty and legal costs that are associated with buying and selling and enables homeowners to remain ‘invested’ in the property market until the situation improves and they can sell at a profit.
“I believe that for reasons of flexibility, mobility and budget, 2012 will see a shift towards more people viewing renting as a preferred lifestyle choice rather than a necessity. By renting a property people are able to plan their spending much more accurately and have the flexibility to follow job offers etc. These factors are becoming increasingly important, particularly in the current financial climate.
“Because of the regional variations in rental yields it is very important for landlords to talk to specialists who understand the local market, as buying in the wrong area could be very costly. Belvoir has 140+ offices spread across the UK and we are able to report on regional markets rather than providing a broad-brush approach, which is not particularly helpful from a property investment perspective.”
Regional round up
Area: East Midlands
“The region initially slowed at the start of 2011, with enquiries from tenants and landlords on a downward trend. Rents appeared to hold, but there was a reduction in yield from two years ago. The spring brought a steady enquiry stream throughout the region except for specialist BTL enquiries, which seemed to all but disappear.
“In July demand for student properties in Nottingham saw a massive surge, resulting in a 10% premium on rents compared to the start of 2011. In Nottingham we were left with only a handful of properties ready to let instead of the normal 40+ units at the end of September.
“We predict that 2012 will be a difficult year, as the impact of job losses result in increased inability to pay rent. Rental arrears will put pressure on landlords that were given a reprieve from mortgage rates in 2008 by a base rate of 0.5% and just managed to keep their head above water. We predict a second wave of mortgage repossessions in early 2012, especially if the base rate increases – even by a small margin.”
Area: West Midlands
“Most Belvoir agents in the West Midlands Region are experiencing an increased demand for two and three bed houses, and are struggling to keep up with new supply.
“In August and September there was a demand for property of all sizes, but this has now slowed, especially in demands for four beds+. This could be a result of the consistent economic `bad news` stories that are pumped out daily by the media.
“Stratford-upon-Avon saw a sharp slow down in November, after a record October. We always experience a seasonal slow down, but we are much quieter now than in November 2010.”
Area: South East
“In the South East the market has continued to be strong rent-wise, with good competition for properties, particularly at the smaller level (one & two beds).
“Smaller investment landlords are starting to make the right noises but some remain hesitant on finance options. However, larger builders have continued to develop once dormant land sites, which are letting well to mature tenants.
“In 2012 I believe there will be continued good demand for £500 to £1200 level properties, with larger properties £1500+ sticking as tenants become fearful of higher rent outlay in the economic climate. Some may downsize or negotiate more flexible contracts. The biggest challenge is likely to be attracting stock, as some estate agents will reduce fees for letting to make up for the static sales market.”
Area: South West
“Over the last six months we’ve seen a shortage of family homes. Two and three-bedroom houses are renting well but the big-end luxury stuff hasn’t really been moving.
“We’re finding that tenants are staying a lot longer in properties, so we’ve had fewer move-overs than in previous years. If anything, there’s a shortage of tenants moving in our area at the moment and properties are starting to stack up a bit.
“Monthly rental returns peaked about March/April time and we saw a bit of a ‘soggy’ summer. We are telling landlords who want to let quickly to be really realistic with rents and some landlords are now slashing rents to get tenants in.
“Over the last six months the biggest challenge has definitely been increased competition from estate agents who are cutting fees. I think 2012 will be tough. Many landlords are adamant that rents are on the up and our biggest challenge will be educating them about the realism of the market.”
Area: North West
“We experienced significant tenant demand during the summer. This resulted in a record numbers of lets, but a significant reduction in stock and rental prices remained static.
“During October and November, tenant demand decreased and stock levels rose with a further wave of accidental landlords. There has been increased activity from investment landlords, as property prices remain depressed. As the local economy shows signs of further deterioration, a growing number of landlords are seeking to reduce costs. In 2012 the majority of landlords will seek to consolidate their positions and continue to place emphasis on value for money.”
Nick Horan of Belvoir Dundee says: “In Scotland I would says that generally rents are not rising massively and in some places, including Dundee, they are completely static.
“Across the market we’re seeing longer tenancies with less churn through of tenants and not massive increases in rents outside of the central bands. Things are going well, though, and accidental landlords are on the increase.
“The biggest challenge in Scotland over the last six months has been increased legislation – there has been a massive amount and more is planned for next year too.
“The outlook for 2012 will depend on the wider economy, which isn’t wonderful. I think we will see an increase in lettings and the availability of tenants but rents will remain static. I definitely don’t think rents will shoot through the roof – but this will vary from area to area.”
Area: Northern Ireland
“The rental market has performed pretty well over the last six months. Demand was good and rent values remained stable – they may even have nudged up slightly in certain areas.
“Towards the end of 2011 the market dipped off significantly, but that’s not uncommon at this time. Overall I’d say that with regard to the rental market things have been very positive. The property sales market in Northern Ireland is very depressed and I believe that the positivity about BTL will continue into 2012. We are seeing many repossessions coming on to the market, which will probably hold values down. As a result it is likely that people will be deterred from buying because they are unable to access finance or save deposits and will turn to the rental market.”