Rents mark inflation while property prices soar

Continually rising house prices mean that yields on Buy to Let property remain relatively static. However, the cash value of rents received by landlords has kept pace with inflation. This shows clearly in the latest quarterly survey of ARLA member letting agents. The survey, the largest of its kind in the private rented sector, also shows that new build is not as popular as believed.

Overall, average capital value of rented houses has risen by 10.7% during the three months to the end of February. This is as a result of rises of 12.4% in prime central London and 15.5% in the rest of the South East. By contrast, average capital values in the rest of the country fell very slightly, by 0.6%.

The average value of rented flats rose by 6%. Again, this is as a result of increases in prime central London of 5.8% and a rise in the rest of the South East of 11.3%. In the rest of the country, the capital values of flats rose by 0.9%.

The ARLA survey shows that rental demand continues to outstrip supply and tenants are staying in rental properties for more than 15 months on average. The survey taken from responses from 525 ARLA member letting agents is supported by the ARLA Group of Mortgage Lenders: Birmingham Midshires, GMAC Residential Funding, Mortgage Express, NatWest, Paragon Mortgages and The Mortgage Business.

The letting offices report that just over half of their rental portfolios are made up of investment or Buy to Let properties. Among these investment properties, new build and properties in good condition are the most popular with Buy to Let landlords. This is with the exception of investors in London.

In the capital, managing agents believe that more investors are buying properties in need of refurbishment, or that have been newly refurbished, rather than new build.

"This may be contrary to what many people believe, but our survey is of sufficient weight to suggest that a rethink about the pattern of London investments is needed," commented Adrian Turner, Chief Executive of ARLA.

Reports emerging about this pattern of purchasing are reinforced by the age of properties being bought. In London itself, investment landlords are most likely to buy properties that are more than 100 years old.

"London has a heavy weighting in its housing stock towards good quality Edwardian and Victorian property. This can be terraced or detached, mansion blocks or small conversions. They are usually well built and spacious and make good rental propositions," added Adrian Turner.

However, away from London, properties that are less than ten years old are proving to be the most popular with investment landlords.

To finance their property investments, landlords are borrowing around 70% of the purchase price. - 73% away from London and 68% in London.

Right across the private rented sector, ARLA members report an historically high demand for rental property. Six out of ten agents in London report more demand than rental stock available. In the South East, the proportion reporting more demand than supply has risen from 37% to 42%. There are also small rises in demand reported from the rest of the country.

Again, this quarter's ARLA survey shows that regulation and bureaucracy remains a problem for landlords with houses in multiple occupation. Since new legislation governing this sub-sector of the rental market was implemented last summer, it has been obvious that many landlords have withdrawn from the HMO market.

Agents report that landlords find the new rules, the volume of bureaucracy, the cost of HMO licences and the cost of alterations to comply are all too onerous.

"This is an obvious demonstration of the dangers of regulation and bureaucracy," said Adrian Turner. "The HMO market is suffering while the rest of the rental market is healthily buoyant."