Landlords predict strong year for tenant demand

An increasing number of residential landlords believe that tenant demand will continue to grow over the next 12 months as the housing market remains subdued.

Research from buy-to-let specialist lender Paragon Mortgages found that over half of landlords (54%) predict tenant demand will increase from its current level over the next year, with 36% believing it will remain stable. Just 5% of landlords thought that tenant demand would decline over the period.

The Trends Report, a panel survey of over 200 landlords, has tracked growing confidence amongst landlords about tenant demand prospects. When landlords were asked the same question in November 2007, 38% said they expected tenant demand would grow over the subsequent 12 months, while 47% gave the same answer when surveyed in February 2008.

The current Trends report found that landlords are already experiencing growth in tenant demand as property prices stagnate and home buyers struggle to secure mortgages. Over a third (34%) said that tenant demand was currently growing, with 55% stating it was stable.

John Heron, Paragon Mortgages managing director, says: ‘We have consistently said that buy-to-let has strong counter-cyclical qualities and we are now seeing concrete evidence of this. Potential home buyers are postponing purchasing decisions because they either feel uneasy about the current market or they simply can't get a mortgage, so they are renting.

‘Combined with strong demand from students, immigrants and people that choose to rent as a lifestyle choice, this is putting an increased strain on the private rented sector's stock. It is likely we will see void periods continue to fall over the coming months and yields continuing to rise as demand for rented accommodation grows.'

Indeed, according to the Trends Report the average void period per year is at its lowest level since the first quarter of 2005 at 2.7 weeks and has been falling since the second quarter of last year. Meanwhile, the latest version of Paragon's monthly Buy-to-Let Index showed that yields in May hit their highest level since February 2006.

John Heron added: ‘The private rented sector is playing an important role in filling the UK's housing gap in the current market. With fewer properties being constructed as developers cut back, demand for rented property is likely to be strong for the foreseeable future.'