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Rent increases could slow for tenants in 2015

Market conditions point to static or low rental increases says Belvoir The UK's buy to let prope...

Market conditions point to static or low rental increases says Belvoir

The UK’s buy to let property sector is set for continued growth in 2015 with tenants, in particular, feeling the most benefit from prospective changes in the market.

Current economic conditions, combined with likely interest rate increases in 2015 and the uncertainty of Government policies following the General Election could result in either static or low rental increases next year.

Our past predictions for continued and sustained growth in the buy to let sector have been borne out by shifting market forces and we believe that the number of people choosing to rent – either for lifestyle or economic reasons – will continue to drive up demand for some time to come.

Dorian Gonsalves, Belvoir’s Commercial Director, adds: “In 2015 we believe that rent rises are likely to be restricted by factors such as continued low disposable income amongst consumers, an anticipated interest rate hike towards the end of next year and a lower than expected forecast for economic development.”

Recent research suggests that rents will rise by an average 1.8 per cent over 2015 which is below the Bank of England’s target inflation rate of 2 per cent.

Belvoir’s independently commissioned Rental Index Report, which for the past seven years has tracked the ups and downs of the UK’s buy to let market, reveals that most of the company’s 160 offices nationwide witnessed little or no growth in rent levels throughout the current year, albeit there have been falls and rises during this time.

“For the year ahead, we believe it unlikely that changes to rents will vary much more than 2014 versus 2013,” says Dorian.

Analysis of regional rents in the Report revealed patchy variations across the country, with many rents not rising at the same levels as property prices - bringing good news to hard pressed tenants who have not seen a widespread increase in wages for some time. This has a major impact on rents because if ‘real’ wage levels and spending power do not increase, rents will also struggle to be increased.

On a brighter note, many landlord investors benefited from a significant recovery in property prices in 2014. London and the South East saw rapid growth, while other areas around the UK achieved increased values of between 5 and 10 per cent.

Throughout 2014 home ownership continued to fall to its lowest level for a quarter of a century.

Whilst property prices experienced significant growth, greater mortgage restrictions introduced by the Bank of England designed to curb lending, kept many people off the property ladder – further strengthening demand in the private rental sector.    

As for 2015, a number of unknown variables could all have an impact on the market.

Pension reforms - due to come into force in April 2015, policies affecting the buy to let sector introduced as a result of the General Election and the impact of pending interest rates expected in Autumn of next year, will all shape the future of the market, which at present shows no sign of slowing down.

Increasing optimism combined with a recovering property market and current low interest rates will, in the immediate term, continue to make buy to let property investment an attractive proposition – especially for longer term investors.  

According to industry estimates, the UK’s cumulative buy to let property portfolio could hit the £1 trillion mark next year. (It currently stands at £931 billion)

Just three months ago (September 2014) the Council of Mortgage Lenders announced a sharp rise in buy to let investment - up 26 per cent over the previous 12 months.

And a recent study claims that over half of residential property landlords in the UK are looking to buy more property in the new year.

All of these findings point towards continuing confidence amongst professional landlords and institutional investors, but the much debated impact of a new breed of ‘buy to let pensioners’ entering the market will only become clear after the new pension rules come into effect. 

There is a groundswell of opinion that a considerable number of people will access their pension ‘pot’ to seek greater returns on their investments via buy to let – creating a new boom in the sector.

The market supply of buy to let may be boosted by the impact of this new reform, but we would advise caution because property rental income should not be viewed as a replacement for pension income as the two are completely different. 

Pension income tends to be low risk and index linked to rise with inflation whilst rental income can be more risky and typically does not grow in line with inflation.

Sourcing a suitable buy to let mortgage as a first-time landlord (especially at a later stage in life) could also prove difficult – even if you have access to a sizeable deposit.

Any potential investor needs to consider all the facts and seek out expert advice and guidance so that they can understand all the issues - amongst them taxation rules  - in order to make an informed decision.

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