Rentals incomes on the move

rental yields flatRental Incomes on The Move

It seems to have been a rollercoaster ride for the residential rental sector over the last 18 months, leading us to a place where very few would have predicted when the pandemic began.

Back at the start of the pandemic we saw lenders withdraw, nervous of job losses, voids and a prolonged depression that would decimate the housing market. Lenders stopped lending, then returned with some caution and restricted loan to values.

Since then the market has moved on, driven in no small part by the stamp duty holiday.

The unknown, or to quote Donald Rumsfeld, the Known Unknown, was what would happen to rents and how that would vary across locations.

The Rental Movement

The move to home working saw a fall in demand for city centre rentals, the biggest area impacted being central London, however the ripple was felt across most major UK cities. That said, we are starting to see a change and to see demand for rental properties move, and move very quickly.

Across the UK rents are now 6.2% higher than this time last year in every region and 2.6% higher than in the first quarter of 2021.

What is different this time is where those rental increases are being seen:

Non-City Locationsrental hotspot locations

The top performing non-city locations show some interesting reading. Whilst there remains a South East trend, the increase in rental cost is spreading wider.

City Locationsrental movements in 2021

The change in city centre rentals tells a different story with a greater impact from the pandemic as workers avoided central locations. The big interesting figure here is the level of demand now being seen, which if history is to be believed will lead to an uplift in rentals being charged.

What it means for Buy to Let Mortgages

As always, there is a lag between what is happening in the market, how lenders react and how surveyors will source comparables to support their valuations.

What we are seeing is a change in appetite and criteria depending on where the property is located, with the city centre locations attracting a greater level of caution. There are some good buy to let options out there, however, with such a fast moving market and a rapidly changing outlook it would pay to properly explain your proposal and the rationale to your thinking when applying for finance. The risk otherwise is that the valuation comes in below where you expect and the surveyor cannot support the rental income because they are comparing to rental incomes 3, 6 or 12 months ago.

For now, my best tip in a fast moving market is to obtain your own supporting comparable evidence, get a list of locally sold units similar to your own, and get a list of known agreed rental incomes.

Hope it helps.

By Dave Farmer

*Rightmove Survey *Propertista

 

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