Value of UK rental market rises

Economic uncertainty around interest rate expectations, the current credit crunch and financial market turmoil has held back a number of would-be buyers and resulted in a dramatic increase in the overall value of the UK rental market, according to Hamptons International, one of the UK’s premier international residential agents.

In fact, Hamptons International research has shown that market conditions have positively impacted the rental market and presented investors with a strong opportunity to profit.

With affordability continuing to be an issue for first-time buyers (the average gross house price to earnings ratio in London now approximately seven-times the typical take-home salary), demand for rental housing has intensified. Statistics have revealed that many landlords have strengthened their income return as rental levels are reviewed.

Figures from the Hamptons International Research Department exposes a sharp rise in the total value of lettings renewal’s in September, up a staggering 40% on last month. There have been numerous cases of landlords asking for over 20% more in rental renewals and tenants signing two year plus contracts, with additional contracted increases built in for 12 months time.

“September is one of the busiest times of the year in the lettings market. However, with current market conditions this has been exacerbated. We have seen a 17% rise in the number of applicants, approximately 10% rise in the number of lettings instructions and strong rental renewals," comments Kate Whotton, Regional Lettings Director, Hamptons International.

“The lettings market becomes more robust if the sales market suffers and this is certainly the case at the moment,” Whotton continues.

Paddington, in particular, is experiencing an increasingly busy student market, with demand vastly exceeding supply. Many tenants are choosing to renew their tenancies, but there is also a huge demand for new properties. As soon as rental properties become available, they are being let, with many going to sealed bids and regularly achieving 15% more than the asking price.

According to Whotton, “In Paddington, a one-bed flat is usually let for £400 - £425 per week. This month, a one-bed property was let for £460 per week; which is 30% more than the highest rent achieved during the same period last year.”

Even though the majority of landlords are choosing to renew their properties with current tenants to secure substantial increases, others are opting to put their property back on the market to secure even higher rental income.

This has led to a drop in the total number of tenancies renewing against last month (down 7%) and year-on-year (down 14%) despite the rising overall value of the UK lettings renewal business.

“The drop in the number of tenancies renewing is down as landlords take advantage of rental increases. Rather than renewing a tenancy at a smaller increase they put the property back on the market to obtain a much higher rental. For example the Kensington office has recently let a property at a 10% increase which would have renewed at a 5% increase,” notes Whotton.

“The rental market is incredibly strong at the moment, with tenants renewing, new applicants moving with the new school year and graduates moving to London and Cities across the UK to start their first job. Landlords are taking advantage of these conditions and realising the investment opportunities available to them,” adds Whotton.

High demand for rental property is encouraging more investors to enter the buy-to-let market. However, market conditions have also forced a number of highly leveraged and over-exposed investors to sell properties from their portfolio or risk adding to the climbing repossession figures.

This trend is supported by the latest findings from the CML, with buy-to-let and further advance lending reaching its highest level at £7.8 billion. Buy-to-let mortgages now account for approximately 10% of all mortgage balances, compared to around 3% back in 2002.

“Landlords who have acquired the bulk of their portfolio in recent years are most likely to be feeling the squeeze in the market today. This has created an opportunity for bold, professional buy-to-let investors operating on a large-scale and with efficient financing to add to their portfolio of properties,” notes Rob Bruce, Senior Research Manager, Hamptons International.

“The rental market is certainly thriving and presents good opportunities for those that invest strategically and in the right location”, concludes Bruce.