Falling rent arrears and rising rent prices at the tail end of 2014 mean that landlords are heading into 2015 feeling largely optimistic, but what should they expect from the market in the year ahead?
Many experts predict that the changes in pension regulation could lead to a buy to let boom, with 32% of people aged 45 to 64 with a pension considering using it to purchase an investment property, according to a recent survey.
43% of people in this category would consider buy to let on the basis that it produces regular income, while another 23% are attracted by the security they perceive property to offer.
17% say that they are attracted by the capital appreciation they expected, while nine per cent favour this type of investment as it provides them with something tangible to leave their children.
Over half of landlords in the UK are looking to expand their portfolios this year, according to a study by PropertyLetByUs.
The optimism is fuelled by the growth in demand for rental property, falling rent arrears and rising rent prices during the last 12 months, says the research.
Only a quarter of the people said that they plan to sell off some of their properties in 2015
For the best yields landlords would do well to look away from London – according to recent research from HSBC, Southampton took the top spot nationwide for highest yields, followed by Manchester and Nottingham.
Southampton’s rental yields are as high as 8.73%, whereas some parts of London such as Hammersmith and Fulham only offer yields of 2.7% as property prices have rocketed so much in parts of the capital.
Manchester offers yields of 7.98%, followed by Nottingham in third spot with 7.67%. No London borough made it into the top 10.
“Landlords outside of London are reaping the benefit as young professionals say goodbye to capital living in favour of more affordable commuter towns,” says Peter Dockar, head of mortgages at HSBC.
More than one in four (27%) landlords are planning to increase the rent they charge tenants by more than 3% in 2015 – triple the latest rate of inflation for the UK – according to spareroom.co.uk.
A further 13% of landlords said they would raise their rents in 2015, but by less than 3%, with many suggesting this was necessary due to increasing costs and increasing mortgage rates.
The average room rent in London has increased annually by 4%, to £704 a month, up from £676 a year ago.
The average UK rent for a double room in shared accommodation rose by 8% in 2014 to £546 a month – up from £505 in 2013 – and is expected to increase further in 2015.
“While the majority of landlords do all they can to hold on to good, reliable tenants, those facing increased mortgage repayments when interest rates rise may have no choice than to cover the extra cost by passing it on to their tenants,” says Matt Hutchinson of Spareroom.co.uk.
Landlords experienced high levels of demand in 2014, which is expected to continue in 2015.
In a recent survey by Paragon Mortgages, 41% of landlords thought tenant demand was either growing or booming in the third quarter of 2014 and just 3% said that they felt demand was declining.
“Home ownership has fallen to its lowest level for a quarter of a century and with property prices continuing to increase, tenant demand is set to grow during 2015 and beyond,” says Jane Morris, managing director of PropertyLetByUs.
One issue that both landlords and letting agents may soon have to deal with is the Immigration Bill, which requires them to check whether potential tenants have the legal right to live in the UK.
A pilot scheme is currently being trialed in the West Midlands which requires landlords to check whether prospective tenants have the legal right to live and work in the country – landlords who fail to comply could face a £3,000 fine. If successful, it will be rolled out nationally.
Perhaps worryingly, over a quarter of landlords believe that the new ruling could lead to a rise in ‘cowboy’ landlords renting out ‘beds in sheds’. A fifth believed it will also make it much harder for non-British born tenants to find a property.
Retail rents in many parts of London are rising on the back of strong population growth. While rental growth outside of the capital is harder to predict, some regional commercial markets are definitely expected to accelerate in 2015.
In the office sector, Manchester again stands out as one of the strongest of the big regional cities, thanks to the success of its professional services. There is also good demand for office space in Bristol and Edinburgh and certain smaller markets such as Aberdeen, Brighton, Cambridge and Reading with strong local economies, according to global asset management company Schroders.
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