Rents Continue to Rise

When Lehman Brothers collapsed in September 2008 and the bottom fell out of the property market, there were fears it would never recover

Unemployment rocketed as the economy failed to stabilise and the following five years brought devastation to many families around the world. The ‘green shoots’ predicted by Sir John Major in 2012 were starting to appear by 2013 and now, a couple of years later, we are witnessing a steady rise in employment, inflation at 0% and house price increases across many parts of the UK, with London prices soaring above their 2008 peak. The government has restructured the stamp duty tax system, making the average purchaser around £1000 better off when they buy a new property. It has introduced help to buy schemes for new homebuyers and is committed to continuing to build new homes around the country. On top of this, the Bank of England base rate has remained at its record low of 0.5% for 78 months, driving mortgage rates down and making borrowing its cheapest for decades. Earliest predictions for a rise are currently February 2016 as concerns remain that a hike could knock the recovery off course.

And yet, movement in the property market is still slow at best.

Even with wages rising at the fastest rate in more than six years, first time buyers are still struggling to save the required deposits and to meet the new criteria in mortgage lending introduced in April this year. So although low interest rates make mortgage payments affordable, the mortgages themselves are inaccessible to most young purchasers looking to take a step onto the property ladder. For the lucky few who have had help from the infamous bank of mum and dad, it is equally difficult to move up from the first purchase to the next rung. Therefore, the number of properties on the market is at an all time historic low, with people choosing to improve the homes they have rather than moving on.

All this, of course, is good news for the buy-to-let investor and for the rental market in general. More young people than ever are renting property when making the move from the family home into their first pad. Where in the past many youngsters chose to rent short term whilst getting to know an area before making the commitment of a purchase, now it is more common for people to regard their first rental as a long term home as hopes of purchasing can remain a distant dream.

But competition is high in this sector and landlords need to be offering a decent abode. Although there is a steady demand for rented property, there is also increasing supply. Gross mortgage lending was at its highest figure since pre credit crunch in August, 12% up yr on yr – but buy-to-let lending was up by 22%. Quality properties will rent out quickly but if they are sub-standard, potential tenants will move on to the next viewing. Expectations are high as there is choice in the market and tenants will not accept anything less than ideal. There are good returns to be made, though, for those prepared to go the extra mile – rents in August were up 5.5% yr on yr, making the average property £803 a month, outside the capital, soaring to £1500 a month in London, according to data collected by HomeLet.