May 2016 has seen rents hit an all-time high in various regions across Britain. In April, according to the latest Buy-to-Let Index from Your Move and Reeds Rains, rents rose by 0.3% month on month, which represents the fastest rate of growth for more than half a year.
In both the East Midlands and West Midlands, rents have hit record levels and East Anglia, too, has seen unprecedented highs. Now, across England and Wales, the average monthly rental stands at £793. The fastest growth of all has been witnessed in the East of England, where average monthly rents have risen by an impressive 8.5% year on year, bringing the real-terms figure to £616.
At Solomon, we’ve long been flagging parts of the East Midlands as potentially attractive investment destinations. Here, rental demand is high, property prices are still relatively affordable, the population is rising and inward investment is adding to the promise of rising employment.
However, the East Midlands is only one example amongst many; the general picture is of widespread gains across the country. The South East has seen strong rental growth over the last month, as has the North East, where values rose 0.8% between March and April 2016. Similar statistics in a number of other regions point to broad-fronted acceleration in rental returns.
One reason for this might be price pressure in the form of raised Stamp Duty and landlords’ awareness that tax relief will be reduced next year. In the face of such cost burdens, investors will always have the option of raising prices. General inflation is another important factor, of course, and landlords will inevitably wish to see their monthly incomes rising by at least the same rate as the cost of living.
There seems little doubt that the private rental sector is a robust market underpinned by healthy, nationwide demand. For years, now, the media has been commenting on the rise of ‘Generation Rent’ as levels of home ownership decline and the popularity of rent increases. Savills Residential research recently reported that: “By the end of 2015, housing stock in the private rented sector was worth a staggering £1.29 trillion. This sum is £535 billion higher than in 2007. Over the same period, the value of mortgaged owner-occupier housing stock has fallen by £273 billion.”
Every statistic seems to indicate the same trend, and with house prices showing no signs of becoming more affordable, this shift in tenures looks set to remain deeply entrenched.
In February 2016, the government’s English Housing Survey found that: “In 2014-15, 19% (4.3 million) of households were renting privately, while 17% (3.9 million) of households lived in the social rented sector.” It also noted that: “Over the last 10 years, the proportion of households in the private rented sector with dependent children increased from 30% in 2004-05 to 37% in 2014-15. With considerable growth in the overall number of private renters over this period, this seven percentage point increase equates to about 912,000 more households with children in the private rented sector. ”
Not only are houses more expensive to buy now than in previous eras, but the eligibility criteria for social housing are also being tightened – so longer term forecasts are predicting yet greater demand for privately rented property.
After a series of confidence-knocking moves by government, such findings should lend encouragement to buy-to-let investors, as should the latest figures examining total buy-to-let returns. On 24th May, Landlord Today reported that average annual returns amounted to 10.7% over the year to April 2016, which equates to a real-world figure of £19,538. Of this total, it wrote: “the average capital gain contributed £10,815 while rental income made up £8,723 over the 12 months to April.”
In previous posts, we have examined the widespread expectation that average residential property prices will continue to rise for at least the next five years. The predicted rates of growth are not as impressive as in 2013, but coupled with rising rentals and buoyant market demand, the long term prospects for investors still look remarkably good.