The road to recovery
Belvoir Lettings releases five-year rental index report and reveals nationwide impact of credit crunch
Belvoir Lettings, one of the UK’s largest specialist residential lettings agencies, has released a new five-year analysis of rental data, which reveals the full extent of the credit crunch on the Buy to Let (BTL) market at national, regional and county levels.
Belvoir CEO Dorian Gonsalves commissioned property expert Kate Faulkner to undertake an in-depth analysis of average advertised rents from Belvoir offices across the UK. The in-depth Belvoir Lettings report (which can be viewed in full on https://www.belvoir.co.uk/rental-index/ ) reveals that since 2008 average UK rents have fallen by almost 2.4%. The report also confirms that from a tenant’s perspective, renting a property in the UK represents good value for money, with rents moving in line with wages rather than inflation. However, research shows that landlords who invested in property for additional income and long-term capital growth have been able to benefit from attractively low rates, enabling them to manage the cash flow of investment properties, even though rents have not risen much during the last five years.
“The Belvoir five-year rental index, which analyses advertised rents on a simple three-month average, is an important and definitive study, which crucially and unlike many other studies, has been tracking data since March 2008 – six months after the credit crunch started,” says Gonsalves. “We have also been able to track rental figures from 139 offices across the UK, and break our analysis down into national, regional and county levels.
“This rental index report is very much aimed at helping landlords and tenants understand the rental market and how it is currently operating right across the UK rather than in pockets of London and the South East. We also hope that the Belvoir rental index, which will be released on a monthly basis, will assist government bodies in understanding the market and enable them to incorporate this information into their policy and decision making processes.
“Every few months we read media reports of rising rents in different parts of the country, which can raise expectations and be very confusing for those investment landlords whose rents have shown little or no increase since the credit crunch began. Our figures confirm that the rental market is still very much on the road to recovery with UK rents down by around 2.4% compared to the heights of five years ago. However, it also shows that the rental market is working well, with rents keeping in line with affordability.
“Landlords should be aware of how their rental income is tracking versus rents at a local level and whether they are keeping up with inflation. It is important to secure the right balance between investing money to keep properties well maintained and minimise voids, but to also be aware of relevant local market factors and know when to increase rents so that they are in line with inflation. In order for landlords to find out ways to maximise their rental income I strongly urge them to talk to their nearest Belvoir agent and obtain free specialist advice.”
National rental trends
In 2008, rents of £705 per month were being achieved. Research shows that following fall-backs in 2008 and 2009, and some rises through 2011 and 2012, rents are now beginning to stabilise.
During 2012 average monthly UK rents were £682, remaining pretty steady throughout the year, with a slight fall being recorded in September to £678 per month and in October to £677 per month.
Report Highlights
Average rents across the UK have actually fallen by nearly 2.4% over the last five years. If rents had risen in line with inflation since 2008, tenants would be paying £113 more per month. Due to the prominence of the ‘accidental landlord’, a substantial amount of rental stock may disappear when the property sales market recovers. Scottish average rents have remained stable at an average of £550 over the last two years. Welsh average rents have remained stable in the past 12 months at around £600 per month. Areas yet to recover to September 2008 levels by September 2012 include the East Midlands, East Anglia, North West and Yorkshire Areas stabilising around 2008 levels include West Midlands and Scotland Areas where rents have recovered to 2008 levels and are rising include the South West, South East, North East and LondonDorian Gonsalves reviews rents from a tenant’s perspective.
“Since the credit crunch, rents have proved to be good value for money. Few rents have kept pace with inflation as they tend to track wage inflation and although wages have gone up the cost of living has gone up more, leaving people with less disposable income. In 2007, the average median gross wage according to Office of National Statistics was just under £25,000. The latest figures for 2011 were £26,871; representing a 7.5% increase. According to the Bank of England Inflation Calculator goods that cost £100 in 2007 would cost £113.84 in 2011. This is an increase of 13.84%.
“In contrast, on average tenants in London are paying higher rents than the average wage and inflation rise, whereas tenants in all other regions – on average – are paying less than both wage and goods inflation.
So renting has since the credit crunch, on average, delivered good value for money for tenants.
“Overall, considering the falls in property prices since 2007 and reasonable rents, many would be first time buyers have been wise to remain in the private rental sector. Rents are moving in line with wages as opposed to inflation and if something goes wrong with the property, inevitably a landlord picks up the tab, so tenants aren’t hit with nasty expenditure surprises as much as a buyer would be. In addition, renting offers better mobility both from a location perspective, but also from a trading up or down perspective in terms of rent commitment, which in this tough job market could be considered a wise move.”
Dorian Gonsalves reviews rents from a landlord’s perspective
“Landlords invest in property for two reasons, either to secure additional income or to cover the costs of the property and secure long term capital growth.
“From a landlord perspective, as long as the rent is covering income, most are happy. Many landlords are on good value mortgage rates due to the competitive nature of the market prior to the credit crunch. With the fall in interest rates having a knock on effect particularly on tracker mortgages, many landlords are benefiting from attractively low rates, so are being able to cashflow their properties well, even with rents not rising too much over the last five years.
“However landlords need to make sure their properties have ideally a 75% Loan to Value (LTV) to take advantage of the best rates. Landlords also need to be aware of how their own rental income is tracking versus rents at a local level and whether they are keeping up with inflation. If not, landlords need to be looking at how they can maximise their rental income. One thing which is important is to secure the right balance between investing money to keep the property well maintained and ensuring voids are kept to a minimum, so rents are maximised as much as possible.”
To find more information on how to maximise your rental income, call into your local Belvoir office for free specialist advice from experienced Buy to Let advisors and expert property managers.
